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Sam Sivarajan is a behavioural scientist, keynote speaker and author of the upcoming book The Uncertainty E.D.G.E. – helping leaders master the tension between hesitation and haste.
“Water, water everywhere, nor any drop to drink.” When Samuel Taylor Coleridge penned these famous words in The Rime of the Ancient Mariner, he described a sailor surrounded by an ocean of useless saltwater. Today’s investors face a similar paradox: an endless sea of investment information with precious little useful guidance to be found.
The investment commentary landscape has transformed dramatically. More than 60 per cent of U.S. investors under age 35 now use social media as their primary source of investment information, outpacing traditional financial advisers at 57 per cent. Retail investors now account for 23 per cent of U.S. equity trading, double their 2019 levels. This surge coincides with the rise of so-called “finfluencers,” with 35 per cent of Canadian retail investors reporting they’ve made financial decisions based directly on finfluencer advice.
Many of these finfluencers are feeding the artificial intelligence investment frenzy of the past year and this information overload distorts markets. Recent studies show companies that mention AI in their corporate announcements often see their stock prices rise in the short term. These findings underscore how, even before operational results materialize, investor enthusiasm for AI-related narratives can drive a firm’s stock price higher.
Consider the case of AMTD Digital Inc., a Hong Kong-based financial services company that saw its shares surge by more than 21,000 per cent in 2022 shortly after its initial public offering, briefly reaching a valuation exceeding US$300-billion – more than Bank of America Corp. or Walt Disney Co. at the time. AMTD, with just 50 employees and less than US$25-million in annual revenue, had announced vague plans related to digital innovations. When reality set in, the stock crashed, destroying billions in investor value.
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This isn’t a new phenomenon. During the dot-com boom, a study in The Journal of Finance documented that firms that added “.com” to their names experienced average abnormal returns of 74 per cent in the 10 days surrounding the announcement, regardless of their actual internet business prospects. History seems to be repeating itself with AI, as a narrative once again trumps substance.
What we’re witnessing is the timeless challenge of distinguishing signal from noise. Nobel laureate Herbert Simon identified this problem decades ago when he observed, “What information consumes is rather obvious: It consumes the attention of its recipients. Hence, a wealth of information creates a poverty of attention.” This insight has only grown more relevant in this age of information overload.
Interestingly, while information overload is contributing to the AI frenzy, the effect is both ways. AI is also contributing to information overload. Recent research from Harvard Business School examining how generative AI affects investment research platforms such as Seeking Alpha highlights the problem.
Professor Yuan Zou and her colleagues found that AI-generated investment content tends to be lower quality than human-authored analysis, resulting in less market impact and fewer reader interactions. Yet despite this quality gap, AI-generated articles still influenced trading patterns and generated interest in covered companies.
This research highlights a critical paradox. While technological tools can expand access to information, they may simultaneously dilute its quality and uniqueness. As Prof. Zou notes, “With the development of generative AI, the worry is that over time, all of these viewpoints will converge to one view – the bot view.” When multiple sources echo similar conclusions generated by the same underlying algorithms, the resulting advice lacks the diverse viewpoints and critical analysis essential for proper market functioning.
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The psychological mechanisms driving this trend are well-established in behavioural finance. Investors frequently succumb to what Nobel laureate Robert Shiller calls “narrative economics” – the power of stories to drive economic events. Compelling narratives create feedback loops in which price increases themselves become the rationale for further investment, disconnected from fundamental value. Currently, AI represents an especially compelling narrative, tapping directly into investors’ fear of missing out, a powerful emotional driver that often overwhelms rational analysis.
Compounding this challenge is the uncertainty surrounding AI’s actual economic impact. While many experts agree on AI’s long-term transformative potential, there’s significant disagreement about the timeline and magnitude of returns. As Nobel laureate Daron Acemoglu notes, “truly transformative changes will take time, with few expected in the next decade.” This uncertainty creates a perfect environment for speculation rather than investment, as buyers chase potential rather than fundamentals.
The financial consequences of following the crowd can be severe. Finance professor Meir Statman’s research reveals that heavy traders, who often chase the latest trends, underperformed index investors by over 7 percentage points annually. Similarly, Brad Barber’s research on Robinhood users found that stocks heavily purchased on the platform tend to experience negative returns that average 4.7 per cent over the subsequent 20 days.
So how can investors navigate today’s information-saturated markets more effectively?
First, focus on fundamentals over narratives. Whether evaluating traditional businesses or emerging technologies, look for evidence of tangible value creation through concrete metrics such as revenue growth, margin improvement or market share gains. Stories sell stocks in the short term, but financial fundamentals determine long-term value.
Second, cultivate intellectual diversity in your information diet. Seek perspectives that challenge your assumptions and preferred narratives. The most dangerous investment environment is an echo chamber in which everyone agrees. When consensus is strongest about any investment theme – whether cryptocurrency, cannabis or clean energy – that’s precisely when healthy skepticism is most valuable.
Third, adopt a time horizon that matches your investment goals, not market fads. The noise of day-to-day market movements obscures the fundamental trends that create sustainable wealth. Patient capital consistently outperforms reactive trading strategies across market cycles and investment themes.
Fourth, recognize and manage your psychological biases. We’re all susceptible to recency bias, overconfidence and herd behaviour. The most successful investors build systems to protect themselves from these tendencies, whether through disciplined rebalancing, diversification or working with objective advisers who can provide behavioural coaching.
Much like Coleridge’s mariner, today’s investors find themselves surrounded by an ocean of information yet thirsting for wisdom. The key to investment success lies not in consuming more information, but in developing the ability to identify what truly matters. In a world of endless financial noise and where storytelling often trumps substance, the ability to extract meaningful signals may be the most valuable investment skill of all.