(from Barry Ritholtz‘s The Big Picture blog dated August 9, 2013. Click here for the original post. Barry is the founder and chief investment officer of Ritholtz Wealth Management, a daily columnist for Bloomberg, a frequent commentator on economics and financial markets for a number of media outlets and was named one of the 25 Most Dangerous People in Financial Media by the Huffington Post.)
Its Philosophy Phriday, and as such, I want to discuss my ignorance. Or rather, my justifiable pride in my willingness to say “I don’t know.”
I use this phrase frequently, for there are a wealth of subjects I know very, very little about.
Sometimes I am asked things I could not possibly know, particularly about the future. Rather than guess, I believe the best approach is to admit the truth, then plan accordingly. The alternative is to do what too many people do:Make predictions, then marry those forecasts. This usually leads to catastrophic results.
Understanding what it is I do not know is a core part of my approach to the world. Its why I focus so much on investor psychology and cognitive issues. I want to understand what I don’t know, and what my brain is essentially lying to me about. I believe this approach is rewarding.
You may be somewhat surprised to learn that this is not standard operating procedure for most people in many fields. Perhaps we might blame this failure to admit ignorance on an excess of testing children, who are taught to regurgitate some answer regardless of whether they know its correct or not — but (heh heh) I do not know the actual cause.
In the world of investing, recognizing what you do not know and therefor should not be betting on is paramount. It is an important trait for an investor/asset manager to own. Too many people assume they are making decisions based on what they know, but oftentimes their decisions are based on what they think they know but really don’t.
I am not trying to be cagey or contrarian for its own sake — although I will admit to a dollop of mischievous joy when I watch a TV news anchor’s face when I respond appropriately to a foolish question:
Q: “Where is the Dow going to be one year from mow?”
A: “I have no idea.”
Q: ( *Twitch* )
Everyone who answers that question with anything other than “I don’t know.” is mostly lying. They DO NOT know, and even worse, they are often unaware of their own ignorance (see our prior discussions on Dunning Kruger effect).
Perhaps worst of all, they mislead the viewer into thinking that they, the expert, does know and that you, the home viewer, does not . . . and therefore, you should BUY MY PRODUCT.
That twitch is not why I answer the way I do (tho its a small reward); Rather, it is the proper answer. It is a reflection of accepting a simple reality denied by (IMHO) 4 out of 5 people in my industry.
There are tremendous advantages in recognizing what you do not know. Acknowledging shortcomings in your informational intelligence is a form of situational awareness that prevents you from being blindsided.
There are other benefits as well. It shifts your focus to process over outcome; it assists you in understanding what is the result of skill and what is dumb luck. It prevents you from being fooled by randomness. And as we have learned, repeatable results that are the result of a process are vastly superior to random outcomes.
This is a more valuable trait, a reflection of a more insightful set of perspectives than you might realize. Some branding experts have (more or less) stated that “You have moved into the niche market of Truth ever since the larger firms abandoned it for more lucrative fields.” Alas, no, this is not marketing schtick. It is a simple acknowledgement of reality, which leads to smarter planning and superior outcomes. It might be more challenging to sell to people — it ain’t slick, does not lend itself to glossy brochures, is hard to manifest in a tagline — but it works.
What are you ignorant about?