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Data Overload for Retail Investors

These days there seems to be a lot of information available to nervous retail investors about the municipal bond market. Maybe even too much.

Ever since Wall Street analyst Meredith Whitney spooked the market with her December 2010 prediction of up to 100 municipal defaults and bankruptcies in 2011 the media have been following the story. There has been a flood of data, research, analysis, and commentary — some of it valuable and some of it plain wrong, according to experts.

Efforts by financial firms have run the gamut from creating blogs, newsletters and discussions to posts on social networking sites like LinkedIn and Twitter. One has even introduced monthly transparency reports designed exclusively for retail investors.

But how much information is too much information? Is the retail crowd being bombarded with data overload?

Municipal experts say the flow of information is useful to investors as long as they can decipher it and use it properly.

“I think more information is generally always better,” said Chris Mier, chief municipal analyst at Loop Capital Markets in Chicago. “The problem is the accuracy of the information being given, and what kind of interpretation is being provided with it.”

Mier said it’s difficult for the retail investor to discern the difference between those that are qualified to render opinions and those that are not.

That challenge is compounded by the flurry of data posted on the Internet, sources said.

Obtaining the investment information from valid sources and separating fact from fiction is the key to understanding and utilizing the bulk of research available on the web.

“Information is always a good thing, but it’s a matter of organizing that information,” noted Bill Mason, senior vice president of municipal trading and underwriting at David Lerner & Associates in Syosset, N.Y.

“With the Internet today, it’s like a graffiti wall — whether it’s the truth or not the truth, an individual is going to have a hard time sorting through the information because they have no control over what goes on the Internet,” he explained.

Mier agreed, saying, “In the age of the Internet, anyone with an opinion can find an audience.”

Good information is crucial for mom-and-pop investors who are making critical investment decisions about muni investing in light of a nearly month-long rally that has pulled tax-exempt yields lower amid lingering fiscal stress at the state and local level.

“I don’t think you can ever have too much information, but you have to develop the skills and techniques for analyzing that information,” Mason said.

Experts agreed that a professional financial adviser can minimize some of the confusion, and help distinguish between the good, the bad, and the ugly.

“Ongoing due diligence relating to issues of financial disclosure by municipalities is both time-consuming and not readily understood by those less versed in the opaque dealings of the tax-free bond market,” said Michael Pietronico, chief executive officer at Miller Tabak Asset Management in New York City.

Mason of David Lerner added that information about munis was always available from different avenues in the industry but has further proliferated since Whitney’s prediction.

“She came out with something negative, but because of her high profile, people tried to validate it or find out if it wasn’t true,” he said. “She strayed into an area that she wasn’t that comfortable with, and is not a muni bond analyst.”

Pietronico said there have been benefits from the increased dialogue about munis in the financial media.

“This can only be deemed as positive in the long run as investors should be educated on the events surrounding the market they are deploying capital to,” he said. “Certainly the more sources of information an investor can access, the better investment decision one can make.”

Mier said there is a fine line between giving the investor enough information and forecasting the future.

“The retail investor should be provided as much information as they want and should not be shielded from information,” he said, but also shouldn’t be offered “crystal ball” forecasts.

“The client should be encouraged to make their own decisions,” Mier said.

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