The Information Vacuum – Sucking the Emotion Out of Investing

There is a famous physics theory, known as plenism, which basically says nature contains no vacuums because any space void of matter would immediately be filled.  It has been adapted to financial theory in the following quote.  “When there’s an information vacuum, emotion fills the void.”

In today’s sometimes volatile financial landscape, political positioning, socialization, ego and personal relationships are things that can fill voids between pieces of factual information. While making a decision, these biases seem completely valid. But by definition, a decision built on emotion and predisposition lacks any true analytical or logical substance. If efficient markets are to be achieved, disclosure, consistency, control and oversight are all required to ensure all relevant information is made known.

While information voids can be advantageous to some in positions of strength, it often creates inefficiencies for the commercial real estate sponsor and investor. For example, a sponsor could have detailed local knowledge that allows them to buy property well below what they believe to be fair market. Unless the sponsor’s experience and performance in such markets is effectively passed on to their investor base, the investor may mistakenly think they paid above market and pass on the transaction.  This may leave the sponsor in a difficult position to close.

This raises the question, what would be a good reason to refrain from replacing the emotions that fill the ‘information vacuum’ with factual data on a consistent basis?  Lack of disclosure can result in a higher cost of capital.  Maybe it is because the sponsor doesn’t realize the associated costs and limitations of not having concise and accurate reporting.  Building a loyal investor base for any business requires consistent engagement.  Investors today crave easy, accurate and timely information delivered via all media.  Technology and communication are lowering the barriers to finding and engaging new investors.   Slow adopters may just lose their investor base, proving that information vacuums are dangerous and costly.  It’s time for the commercial real estate industry to deploy technology to present facts and information to the investors that are the industry’s life blood in the same type of modern, professional dashboards those investors have become accustomed to for online banking and stock trading platforms.