What Do You Know?

"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

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What's been said:

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  1. Fred commented on Jul 9

    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

  2. Blissex commented on Jul 9

    «Economists, securities analysts and cable’s talking heads know our brains prefer positive upbeat news.»

    That is called ”selling”, and if investors believe sell-side analysts, well, good luck to them :-).

    «Our minds are masters at denying the truth»

    That is called ”the potential customers” :-).

  3. john commented on Jul 9

    Sounds an awful lot like my Rule #1 – Nobody Knows Nothing (including me).

    Or as I heard it once said – I see what you see but I see what I see too.

  4. V L commented on Jul 9

    “Those who speak do not know”


    “Lehman Brothers raised its price target for shares of 3M Co. on Wednesday June 28, 2006, saying the diversified technology company will be able to meet revenue growth rate targets”
    “J.P. Morgan said on Thursday July 7, 2006 it had raised 3M Co. to “overweight” from “neutral.” It had cited an attractive valuation and consistent, high-quality earnings.”

    Shares of 3M Co. fell $7.29, or 8.96 percent, to $74.10 on Friday July 7, 2006 because 3M warned that soft flat-screen sales would hurt earnings.

  5. HT commented on Jul 9

    1. “The best way to predict the future is to invent it” Alan Kay.

    HT interpetation: Entrepreneurs are the engine of this great country [proud to say I’m one], and wall street yes facilitates but leaches at the same time. [vastly more the latter in my opinion]

    2. “The only true wisdom is in knowing you know nothing. ” Socrates

    HT interpetation: So why is anyone on this site? Kudos to Barry for admitting this, but it seems [with all due respect] a bit paradoxical that his [all of ours] “not knowingness” can be happily purchased for a fee. I’m here, because I believe in a secular bear market, it’s gonna be tough to buy and hold and get nothing but paltry dividends/yields for years. I long for the days of a secular bull–when I can promise that anyone that doesnt passively index across a global and diverse asset class and rebalence once a year, is truly a fool.

    Question is, can all this effort secure any better return during the bear or not. We’ll see.

  6. whipsaw commented on Jul 9

    I am pretty sure that 90% of the “analysts” are descended from carnival barkers. The only analysis that their great grandfathers did was to determine whether most of the adult males in a given community already had steel plates in their heads from eagerly paying a dime to “step right up and box with the kangaroo” in previous seasons, in which case the itinerary was changed in favor of another.

    But maybe that’s ok- what’s wrong with taking money from stupid people? There doesn’t appear to be much danger of running out of customers. ;-]

  7. algernon commented on Jul 10

    Sounds uselessly nihilistic to me. We make observations & use reason to better our odds.

  8. donna commented on Jul 11

    Sigh. So many misinterpet the Tao.

    Speaking vs. Knowing doesn’t mean you don’t talk about things. It means that saying something is not the same as knowing, or experiencing, the thing itself.

    I can tell you all about my skydiving experience, but it’s not the same as if you went skydiving yourself. Get it?

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