"I Have No Idea"
By Morgan Housel at The Motley Fool
Excerpt:
But there is an infinite amount of stuff in finance that can't be answered with math, facts, or formulas. There are things we can't measure, and things we can't understand, ever. Herd behavior, future trivia, and psychology aren't things we can predict today. It's just insanity and chaos.
That's not acceptable to you if you've been trained to measure things with facts and formulas. Just like the prep school student, there is no world outside of the facts you've been trained to memorize. So you try to predict human behavior with standard deviation, or the decisions of a despotic dictator with a bell curve. And you fail, virtually every time.
Realizing the limits of your intelligence one of the most important skills in finance. P.J.O'Rourke described economics as "an entire scientific discipline of not knowing what you're talking about," which is pretty accurate. When you pretend you know something you don't, your perception of risk becomes warped. You take risks you didn't think existed. You face events you didn't think could occur. Understanding what you don't know, and what you can't know, is way more important than the stuff you actually know.
Full article: "I Have No Idea."
