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Investing is suffering from growing information asymmetry

  • Investment professionals and investors are increasingly separated from expertise

  • Trading in some investments has been democratised. But access to the information to make trading decisions has not

  • Can the creator economy ride to the rescue?

Investing is suffering from growing information asymmetry
Duncan Wales
Duncan Wales

Chief Executive Officer

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Tellimer Research
13 August 2022
Published byTellimer Research

Researching investments used to be a pro sport

I have written before about how the world of investment-related information has changed. Since the advent of the smartphone in particular – the iPhone hit the market in 2007 – access to information, investing and other services has been transformed.

The world of financial research and data was traditionally a specialist sport played only by people who worked in financial services and was entirely invisible to everyone else: it was not (and still is not) possible to find the vast bulk of research that investment professionals use on the web.

Professional and specialist research resides on closed platforms, designed – and priced – for professional, institutional users, such as Bloomberg, Refinitiv and S&P Global. There was literally a closed loop of information within the financial world: only professionals produced it and only professionals consumed it.

It seemed to make sense to play the entire investment game behind closed doors – it was complex, expensive, expert stuff for large institutions only – who else would possibly need access to it, and who else could possibly contribute to it?

Power to (all) the people

The transformation in the demographics of investing has been rapid and dramatic. Armed with smartphone distribution, disruptive technology has put the ability to trade shares, futures, options, FX, and crypto into the hands of at least 300mn people who have a trading account. That is before you include all the people who care about how the financial world works because they have a self-invested pension, a 401k, a mortgage, run their own business, or take a pro-active interest in their and/or their dependents’ financial position.

Trading in some investments genuinely has been democratised. However, access to the information people need to make trading decisions has not. Professionals and the new class of semi-professional investor use very different tools for accessing insights: the professionals use Bloomberg, Refinitiv, FactSet, CapitalQ and other systems to access professional insights. Everyone else relies on Google and social media.

But – ironically – now so do professionals: Twitter is a venue for serious thinkers and a vehicle to build an investment or business track-record in public. And even the Discord – a social platform designed for gamers – hosts a thriving community of investors and commentators. And as we at Tellimer know from our institutional clients, professionals often have to turn to Google for difficult-to-find information and expertise.

While investing remained a rarefied and exclusive activity, finance professionals used to enjoy a huge information advantage over everyone else. However, the era of access to investing has created a new information asymmetry – perhaps counter-intuitively – that creates a problem for professionals as well as the new classes of semi-professional and democratised investors. A market friend recently asked me where she could find information on Italian biotech. “There is a load of sell-side research on the same things, but I can’t find specialist information when I need it”, she added, with some frustration.

Because there is a hard, opaque barrier between the professional networks – which are very good at what they do but were designed and built for the old world and have proportionally less access to unique information than they did – and the growing pool of expertise in the wider economic environment, both are separated from each other, to everyone’s detriment. Information is still too hard to find.

More to invest in – less research

A feature of the rise in technology is that it has grown alongside – and arguably actually created – new asset classes and themes for investment: not just DeFi, but all the complex dimensions of ESG, alternative energies, food production, cleaner extraction industries, alternative energies, evidence-based ethical investing and procurement, e-commerce, food delivery apps, online shopping, super-apps, electric vehicles and also the economic rise of large developing economies such as China, India, Brazil and many others. There is much more to understand than ever before, and less and less coverage of it all from the traditional world of finance.

The decline in research coverage across Developed, Emerging, and Frontier equity markets

It should be possible for a single person or small team, with big firm experience or equivalent quality to reach anyone who is searching for guidance on how to think about their personal – or professional – investments/economy/business. Much as everyone who needs it should have access to sophisticated thinking on financial and economic matters, the traditional community of finance also needs new and different sources of expert information as well.

Traditional finance meets the creator economy

The creator economy – in which individuals rather than platforms have control of their editorial agenda – now permeates a number of industries: journalism (think Substack or Medium) e-commerce (think Shopify), music (think TikTok), TV (think YouTube) and fashion (think Instagram): “influencers” have not brought an end to the platform model – the FT, WSJ, HBO and even Netflix still exist – but have added to and changed the landscape forever. Content may be king, but distribution is essential.

The opportunity exists to give the frustrated professional audience as well as the increasingly savvy population at large access to the right expertise. The new democratised creator model will not replace the old, but rather interact with it in a controlled way: users of professional systems will still use those systems, but need greater access to more and different information. Individuals will value high-quality access in accessible forms. The new wave of tech will transform access to financial, economic and business expertise: the creator economy will provide selected permeability to the hard structural barriers that currently separate expertise and demand. It will:

  • enable the organised recovery of investment insights and specialist expertise from whoever has it.

  • lower the entry point for everyone to access to high-quality sources of insight, which have hitherto only been available to professional investors.

  • diversify the number of valuable sources of insight, perspective and specialist information available to professional users.

The free-for-all romance of a Web3 world in which everyone owns part of the internet may not quite come to pass, but it is entirely realistic to think of a world in which more professionals and experts have the ability to monetise their expertise without the need to be employed by a huge company. That still sounds like freedom to me.

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