Socrates, the classical Greek philosopher was executed in 399 BC.
Charged with 'corrupting the youth' and 'impiety'.
Although, Socrates didn't do that...
What he did in fact do, is an important lesson for investors.
Rather than corrupt the youth, Socrates taught them to challenge authority and question the truth in everything.
Many powerful people were frustrated by his constant questioning, now known as the Socratic method.
Plato, another Greek philosopher, wrote an account of the speech Socrates made at his trial, called The Apology.
In it, he declared Socrates to be the wisest man in Athens.
No one was more surprised by this than Socrates himself.
He wanted to disprove it and set out to find a wiser man.
Here's what he found:
"I went to one who had the reputation of wisdom...he was a politician whom I selected for examination...When I began to talk with him, I could not help thinking that he was not really wise, although he was thought wise by many, and wiser still by himself; and I went and tried to explain to him that he thought himself wise, but was not really wise; and the consequence was that he hated me, and his enmity was shared by several who were present and heard me.
...saying to myself, as I went away: Well, although I do not suppose that either of us knows anything really beautiful and good, I am better off than he is – for he knows nothing, and thinks that he knows. I neither know nor think that I know. In this latter particular, then, I seem to have slightly the advantage of him.
Then I went to another, who had still higher philosophical pretensions, and my conclusion was exactly the same. I made another enemy of him, and of many others besides him."
It turns out Socrates was the wisest man in Athens.
Not because of how much he knew, but because he was the only one who realised how little he knew.
This lesson in humility is perhaps most valuable in the world of investing.
It's similar to the Dunning-Kruger effect.
The truth is, we're not very good at evaluating ourselves accurately.
We’re cognitively biased.
The majority of people believe they're better than average.
95% of people think they're better drivers than the majority.
Even elderly people rank themselves among the best drivers.
A more interesting example is that 88% of investors assume they're better in comparison to their peers!
Often we see investors choose 'cheap' but are blind to the enormous hidden costs or knowledge of how to calculate them.
Sometimes, a lack of awareness of decision-making psychology can create decades of damage.
Our 'ego' blinds us to the true facts.
It's extremely hard to outwit investment professionals with many decades of experience and access to Nobel-prize-winning thinkers and research.
So, how do you practise humility in investing?
The more knowledge people have, the more they typically realise how little they know in reality.
In other words, the more people know about a certain issue…
The more they realise how complicated, unexplored and extensive it is.
And, how many things they do not understand or know yet.
Socrates believed you should strive to educate yourself as much as possible.
But be cautious in your decisions.
The realisation you don't know something is the beginning of wisdom.
And with investing, the sooner you realise this, the better.
In face of the unknown, humility is often your best protection.
Further reading
Sitting on cash during a bear market? Here's what to do
What I'm reading #25: Losing money is normal for experienced investors
Bear markets: 5 things to remember
Goals vs. capital: Are yours aligned?
What I'm reading #24: Willful blindness: why we ignore the obvious at our peril
