What Do You Know?

Sunday, July 09, 2006 | 06:46 AM

"Remember the wisdom of Lao Tzu: "He who knows others is wise. He who knows himself is enlightened." What do you know?"
Paul Farrell


This seems to be Paull Farrell appreciation week at the Big Picture. I sense his frustration levels are increasing as he continues to rail against some of the absurdities of Wall Street.

Paul, you better watch out or you may become victim of the Cassandra Syndrome.

His latest column I wanted to reference exhorts investors to avoid the guru trap and steer clear of forecasts. Indirectly, he really suggests that individuals must take responsibility for their own investments. Incidentally, I addressed an aspect of each of these three concepts in 3 different Apprenticed Investor columns:  The Folly of Forecasting, Lose the News, and  Your Fault, Dear Reader.

Here's an excerpt:

"The best investing advice is simple, timeless, paradoxical -- and often ignored. Yes, ignored, because so many investors cannot make decisions. Lacking self-confidence, they rely on the random flow of breaking news. That overwhelming rush of new information, all of it short-term, drowns out the investment advice to which we should be adhering. Those timeless principles demand that we ignore breaking news and take personal responsibility, a very scary idea for investors who have lost their self-confidence.

This message has been summarized by the Chinese master Lao Tzu: "Those who know do not speak, those who speak do not know." He offered this investment advice three thousand years ago in the Tao Te Ching. Test it on any guru: Gross, Siegel, Bogle, Cramer, Bernanke, Paulson, and yes, even me. Of course, if investors took Lao Tzu's advice, Wall Street would be out of business. You'd be in command!"

Its more than the being misled by the news flow; Understand that much of what is said is merely people "talking their books."  Not purposely misleading -- but that is the ultimate result.

Regardless, Farrell spoke with Paul Merriman, and identified 5 issues investors need to think about when considering forecasts and pundits and their own knowledge of "the facts" :

1. Stuff you know, that actually is true

Investors are historians not futurists. We're overloaded. Even with the best data available, like our fund profiles, you're dealing with 10,000 funds, each with 100 bits of data that's actually old news, usually at least 3-6 months old. So you oscillate between a false sense of being well-informed, and insecurity about the truth.

2. Stuff you think you know, but is wrong

Economists, securities analysts and cable's talking heads know our brains prefer positive upbeat news. Eternal optimists, they speak the good news. You know you don't know the future, so you turn to the media and press for hints, thinking maybe if you just listen to CNBC long enough, or read one more newspaper, or research one more fund, you'll figure out tomorrow. The blind are leading the blind. Your mind is rationalizing a bad idea.

3. Stuff you know you don't know, but obsess about

Every day the media talks endlessly with hundreds of market gurus, economists, CEOs. You get all the contradictions, oxymorons, dilemmas, paradoxes, a daily torrent of conflicting data about tomorrow's unknowns and unpredictables. So you obsess anxiously, trying to figure out what you can never really know until after the fact.

4. Stuff you know to be true, but deny

Our minds are masters at denying the truth, even when it's staring us in the face. In hindsight any damn fool could have predicted the dot-com collapse. But greed drove us and we denied P/E ratios mattered. You're fortunate if 25% of what you know is true. But the fact is, even when you feel you're right, you might still be dead wrong, unable to let go of even a bad idea.

5. All the stuff you don't know that you don't know

Stuff you don't see until after the fact, when it's too late! Unknowns that unpredictably crash markets: Natural disasters, deficit collapses, homeland terrorist attacks, nuclear war.

Regardless of our gaps in knowledge, the best advice remains  to recognize you are on your own. "Folks, the toughest decision any investor must make is to act responsibly. But you'll never mature if you don't stop following the "experts" and take full responsibility. It's your money, your retirement, and in the end, you, not the gurus you listen to, are stuck with the gains or losses."

As one who is in the Pundit class, I've hoped to be the exception to the rule.

For more on Cassandra, see this . . .


Tao of the market, where silence is golden
Paul B. Farrell
MarketWatch, 10:05 PM ET Jun 12, 2006

Sunday, July 09, 2006 | 06:46 AM | Permalink | Comments (8) | TrackBack (0)
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I thought the Merriman stuff sounded familiar, then I remembered...

"There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns - the ones we don't know we don't know."

- Donald Rumsfeld

Posted by: Fred | Jul 9, 2006 7:39:25 AM

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