Tag Archives: signal-to-noise

The Signal and the Noise (Part 4)

We’ve talked about cutting out noise. Can we boost the signal, too?

Oscilloscope. Illustration: Brian Elliot. Source: Wikipedia

Looking at a signal-to-noise ratio is a good way to understand why we get so distracted. It’s the proportion in our lives of meaningful information compared to irrelevant data that bombards us all the time. It’s like the level of a radio station’s programming above the static background.

And there’s a lot of noise in our lives—diversions that make it hard to hear what’s important. So, one way to enhance this ratio is to reduce the noise, by having a quiet space or using un-networked computers – unplugging. But another way to improve how much information we receive is to amplify the signal.

We can do this with a checklist, to identify our priorities. Write down what’s on your to-do list and group the items into first, second, and third priority items: P1s, 2s, and 3s. P1s are absolutely essential stuff that has to happen today, P3s are things that are nice to get done, some day. And P2s are in-between – important, but not critical.

Some weeks you just have to keep afloat in the midst of the storm. Other weeks, there’s only one P1 on the list. Polish that off, and concentrate on your P2s. Then apply a time-budget. Give each item a specified amount of time and try to move on. Schedule your week and plan out your work. Then work your plan.

Photo: Rawpixel. Source: Life of Pix

If we don’t focus our energies, we’ll drown in clatter and clutter. Don’t just prioritize what’s on your schedule, schedule your priorities. A great manager once said that the main thing in life is to keep the main thing the main thing. Listing our priorities and planning our time is a good way to make this happen.

Douglas R. Tengdin, CFA

Signal or Noise?

Are you getting signal or noise?

That’s what investors need to ask when they evaluate their portfolios. The “signal-to-noise” ratio is an engineering concept that compares the useful information received to false or misleading data. Everyone should want more signal and less noise. Noise is static on the line: the more you have, the harder it is to make effective decisions. So how do you raise the ratio?

First, focus inward. What do you want your investments to accomplish? If they’re there to help provide for your retirement 30 years from now, don’t get stressed out by day-to-day wiggles and jiggles. In fact, if you look at your 401(k) once every couple years, just to make sure your balance is right, that’s probably enough. On the other hand, if you want your portfolio to provide income, then look at your income stream—and the source of that income. If you have a bunch of high-coupon short-term bonds, you might need to diversify. But first, examine yourself.,

Second, reduce your distractions. Reducing noise is often a fight against habits. Things like daily news (usually old), talking heads (always self-interested), attractive stories (that contradict hard data), and market rumors (why are you favored with the inside scoop?) can lead to both overconfidence and personal panic. Pare down these meaningless distractions.

Finally, try to establish regular routines that allow you to cultivate an inward life. Jogging, meditation, prayer—even reading good literature—allow you to think apart from texts, tweets, headlines, and (dare I say it?) blogs. Such discipline is increasingly rare today. And what is rare is usually valuable.

Improving the signal-to-noise ratio is a big reason why I write every morning. It helps me think things through and sift the wheat from the chaff. So: how much noise do you face?

Douglas R. Tengdin, CFA

Chief Investment Officer