Information glut

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: Have you seen the TV ad in which an investor at a company’s shareholders’ meeting stuns the management by his in-depth knowledge of the company’s annual report? The ad is interesting because it suggests-quite correctly, I believe-that businesses routinely hide or obscure information that they are required to reveal. Companies are supposed to reveal a great deal of information but the sheer quantity makes it easy to hide or disguise facts. Even if the information is not actively obscured, its sheer mass means that selecting what is relevant is a task.

Whether it is the offer document for a company’s IPO or a new mutual fund, the issuer complies perfectly with the rules of disclosures but the final effect is mostly useless. To see proof of this, just get hold of a dozen people who have invested in IPOs or mutual funds lately and ask them if they have read the offer documents. If these are typical retail investor then the number of investors who have read the document will inevitably be zero. To my mind, this is the fault less of the investor and far more of the way such documents are written and the regulations that govern them. The focus seems entirely on the quantity of information that is revealed, rather than the way it is presented and prioritised. It’s a bit like the difference between Altavista and Google. Old Internet hands would remember a search engine called Altavista which, for a brief period, was very popular before Google dethroned it around 1997 or 1998. Altavista was all about quantity and was good at throwing up a huge number of pages in which your search term existed. Google, on the other hand, was all about quality and its real ability lies in being able to put the most relevant links right on top of the first page. When it comes to providing information, what really matters is not quantity but the way things are prioritised and presented. Offer documents-and other mandatory disclosures-need to be designed with the focus not on how much information can be stuffed into them but how easy it is for the relevant information to be found and understood.