Topic: How To Invest

What is Pat’s commentary for the week of August 16, 2016

Article Excerpt

The “signal-to-noise ratio” is an engineering term. It refers to the level of usable “signal” in a communication (the useful part that carries the data), and compares it to the “background noise” (the useless accompanying part, which mostly consists of random bits of information). When the signal is too weak, background noise drowns it out and makes it unusable. The same thing can happen when the signal is strong but the background noise is stronger. To improve communications, engineers try to increase the signal-to-noise ratio. To improve profits, investors try to do something like that, too. It works better in engineering than it does in investing. Some investors tap into an ever-growing quantity or variety of investment information, in hopes of improving their investment results. You might say they are trying to improve the signal-to-noise ratio by using more “signal.” Most eventually find that the more info they try to absorb, the more confused they get. Others try to cut the background noise…