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

Category: Apprenticed Investor

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Category: Data Analysis, Employment

NFP: Another in a long series of disappointments

Category: Data Analysis, Economy, Employment, Psychology

Pink Floyd Founder Syd Barrett Dies

Category: Music

PR Weenies: Go Away!

Category: Media, Weblogs

Signs of the Bear: Ned Davis

Category: Data Analysis, Investing, Markets, Psychology, Technical Analysis

NFP: much ado about very little

Category: Employment, Federal Reserve, Real Estate, Wages & Income

One More Time: The thread is open

Category: Weblogs

Paul Farrell on Wall Street Bullshit

Category: Financial Press, Markets, Psychology

Debunking One of the Worst Ideas in Economics

This is scheduled to disappear from Yahoo  soon — I wanted to capture it before it went away. Its a criticque of Supply Side economics by Charles Wheelan, former US columnist for the Economist, and at present an economics and public policy professor at the University of Chicago and visiting prof at Dartmouth College. Wheelan is the author of Naked Economics: Undressing the Dismal Science.

Debunking One of the Worst Ideas in Economics
Wednesday, May 3, 2006


"In this column, I’m focusing on bad economics. In fact, I’m going to write about what I consider to be the two worst economic ideas — or at least ideas that pass as economics, though both have been thoroughly repudiated by nearly all credible thinkers.

When I say worst, I don’t mean the most outlandish (e.g. stock prices are controlled by aliens) because those ideas usually collapse of their own weight. Rather, the most pernicious bad ideas in economics are those that have a ring of truth. They’re hard to debunk because they have a certain intuitive appeal. As a result, they stick around, providing bogus intellectual cover for bad policy, year after year, decade after decade.

For the sake of political balance, I’ll skewer a favorite of the right in this column, and then a favorite of the left in my next piece.

Read More

Category: Data Analysis, Economy