In Praise of Doubt
It is very important to acknowledge what we don’t know.
First of all, if we’re going to out-invest the rest, we need a game plan. There are a lot of possible routes to success on which to base your process: in-depth research into companies, industries and securities; arbitrage; algorithmic investing; factor investing; even indexation. But if I’m right about the difficulty of macro forecasting, for most people that shouldn’t be it.
Second, and probably more importantly, excessive trust in forecasting can be dangerous to your financial health. It’s never been put better than in the quote that’s often attributed to Mark Twain, but also to several others:
It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.
Just a few words, but a great deal of wisdom.
No statement that starts with “I don’t know but . . .” or “I could be wrong but . . .” ever got anyone into big trouble. If we admit to uncertainty, we’ll investigate before we invest, double-check our conclusions and proceed with caution. We may suboptimize when times are good, but we’re unlikely to flame out or melt down. On the other hand, people who are sure may dispense with those things, and if they’re sure and wrong, as the quote suggests, the outcome can be catastrophic.
It is very important to acknowledge what we don’t know.
First of all, if we’re going to out-invest the rest, we need a game plan. There are a lot of possible routes to success on which to base your process: in-depth research into companies, industries and securities; arbitrage; algorithmic investing; factor investing; even indexation. But if I’m right about the difficulty of macro forecasting, for most people that shouldn’t be it.
Second, and probably more importantly, excessive trust in forecasting can be dangerous to your financial health. It’s never been put better than in the quote that’s often attributed to Mark Twain, but also to several others:
It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.
Just a few words, but a great deal of wisdom.
No statement that starts with “I don’t know but . . .” or “I could be wrong but . . .” ever got anyone into big trouble. If we admit to uncertainty, we’ll investigate before we invest, double-check our conclusions and proceed with caution. We may suboptimize when times are good, but we’re unlikely to flame out or melt down. On the other hand, people who are sure may dispense with those things, and if they’re sure and wrong, as the quote suggests, the outcome can be catastrophic.
Reference:
In investing, uncertainty is a given – how we deal with it will be critical. Read Howard Marks’s latest memo, in which he discusses the value of understanding the limitations of our foresight and “investing scared.”
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