“Knowing yourself is the beginning of all wisdom.”



Over the past few weeks, I have been waxing eloquent on the subject of self-awareness, knowledge, and recognizing one’s own lackings thereto. Last week, we discussed the Value of Not Knowing; that followed the prior week’s discussion of why I don’t bother guessing a monthly NFP number.

Today, I want to discuss Self-Enlightenment — why understanding yourself is so important to investors. This isn’t a Zen discussion of achieving a higher sense of oneness with the universe; rather, it is an explanation as to why knowing what it is you actually know, understanding what you don’t know, and having a high level of recognition of the danger when you think you know (but really don’t) is so crucial.

Those of you have seen our “Brain on Stocks” presentations know that MetaCognition is an important part of understanding. You also know that a significant part of expertise is the intense understanding of one’s own skills and limitations. The other side of Dunning Kruger effect — which we have discussed repeatedly — is that the amateur and the unskilled participant are stunningly unaware of their own inferior knowledge and skill set. They do not know what they do not know — often, fatally so.

So perhaps the best question we can ask of an investment manager (or an investor can ask themselves) is not “How Smart Are You?” Rather, it is “How’s your MetaCognition?” How self-enlightened are you? How well do you understand what you don’t know?”

From Socrates to Plato to Aristotle, metacognition was an important part of Greek philosophy. Socrates perhaps most famously declared “I only know that I know nothing;” He was perhaps the first human to wax eloquent on metacognition. It may be counter-intuitive, but understanding one’s own ignorance is the first step to attaining knowledge.

Perhaps Shakespeare put it best in As You Like It: “The fool doth think he is wise, but the wise man, knows himself to be a fool.”

How’s your metacognition?


Category: Philosophy, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “How’s Your MetaCognition?”

  1. Liquidity Trader says:

    Haven’t commented in a while but I am loving this series.

    Please keep these Friday philosophical digressions going . . .

  2. rd says:

    My biggest concern about Larry Summers as Fed chair as he would probably believe that your post does not apply to him.

    I could see him taking the country over a financial cliff like in the Rebel Without a Cause scene where he does not believe the country’s leather coat will get caught during the exit process.

  3. Petey Wheatstraw says:

    The bottom line truth is that we do know nothing (although we perceive and believe many things). We can’t even prove we exist. Impractical, but absolutely true.

    As far as I can tell, everything I perceive might actually be a projection. Maybe you are all figments of my imagination, and me, of yours.

    Coffee seems real, though.

  4. CSF says:

    Long before Don Rumsfeld was mocked by his critics, the phrase “unknown unknowns” was common in the military. Clausewitz emphasized that war is chaotic and unpredictable, creating a “fog of uncertainty.” A successful commander embraces this uncertainty by always trying to understand what he doesn’t know so he can adapt to the evolving threats.

  5. Sovavia says:

    My favorite saying from Socrates on this topic: I neither know nor pretend to know.

    We often pretend to know things, and then realize it ain’t necessarily so, because they are subject to change. The best example today is risk aversion, the expansion and reduction in the PE multiple. Another is the rise of intangibles in the economy, which may affect GDP, price-to-book values and the Q ratio.

    The principal reason we pretend to know is our constant struggle to recognize our own ignorance, which has a cost and a cure.

    However, greed is the more potent force in the investment world. As risk aversion abates, greed rises and fear diminishes. Our psychological biases mainly originate in fear and greed. We truly believe strange things because we are too greedy or too fearful.

    • jbay says:

      You’ll forgive poor Polus for having thought Socrates a know it all! Granted, Polus was wrong; you didn’t see Socrates being snippy with Gorgias did you?

      No, respect is given, to the old when wrong
      the young are bruised, beaten and chided upon.
      For what exactly no one knows
      The teachers error to the student goes

  6. faulkner says:

    Meta-cognition is precisely that. Meta (above) cognition (the act or process of knowing). This is achieved by first developing a robust number of different “acts or processes of knowing” and then having the means to get “above” them. Their very diversity suggests a strategy. ‘This process applies here.’ ‘That process doesn’t.’ Defining contexts – timeframes, spaces, activities, abstractness, etc. – is one means of getting above and usually the first to emerge. Rather that ask about meta-cognition of managers directly, listen for this kind of slicing and dicing.

    The Dunning-Kurger effect is the opposite. A single simple image that applies in all times and places – which makes the accompanying story oh so clear, vivid and compelling. The trade-off for increasing meta-cognition is increased complexity, counterexamples, exceptions and less certainty. Many of us find declarative certainty (of leaders of all strips) nearly irresistible. Which leads to your point about self-enlightment.

  7. Hallsto says:

    My metacognition tells me I’m the poster child for the Dunning-Kerger effect.

  8. mllange says:

    Sir Isaac Newton, Bach, Dostoevsky, Faraday, Tolstoy, Tolkien, Kelvin, Handel, Planck (main founder of quantum physics), Mendel (main founder of modern genetics), TS Eliot, Stravinsky, Fra Angelico, Maxwell, Heisenberg, Donne, Dante, Evelyn Waugh, Graham Greene, Gödel (arguably greatest 20th century logician), Lemaitre (main found of Big Bang theory), Francis Collins.

    What do these individuals have in common?

    All believed in a source of higher intelligence and looked for inspiration, understanding and knowledge from that Source. Perhaps self-enlightenment can be greatly enriched (for all of us) if we also seek higher enlightenment. Can we really know ourselves if we delude ourselves when it comes to our own nature?

    • Hallsto says:

      If in the moment one considers his or her intelligence to be inferior to their potential, they are recognizing the construct of a higher intelligence, even if only constituted as a possibility. Is this the kind of higher intelligence you’re referring to? Or are you making inference to one or more of the litany of literary higher intelligentsia (Zeus, Aranath, Xbalanque)?

      I only ask because deferring your understanding of something greater than the collection of known reality to millenia-old “scholars” is virtually antithesis to the prior concept. On one hand the individual embraces potential, the other restrictive predetermination.

  9. Dogfish says:

    “Can we really know ourselves if we delude ourselves when it comes to our own nature?”


  10. JohnCaparusso says:

    Barry, I’ve been reading your comments on not-knowing with serious amusement. I assume you know the essay by Donald Barthelme, “Not-knowing”, dealing with the creative process. If not, check it out.

    I agree that self-doubt is generally healthy for investors and their analytic advisors. In my case, it drives a search for constant discovery and refinement at all levels: hypothese, analytic structures, and data. Test everything. Question everything. Dwell particularly on the ideas you hate.

  11. snowflake says:

    Dunning-Kruger Effect ~= “Often Wrong, but Never in Doubt”.

    It would be interesting to read how you and your readers think this applies to the political parties and their leaders today.