It was February 12, 2002 and as a young Army officer I was sitting on my tank top listening to the radio.
Donald Rumsfeld, the US secretary of defence, was known for being decisive and confident.
He was talking about Afghanistan.
"There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. These are things we do not know we don’t know."
Think about it for a minute.
Here is the man charged with guiding the war efforts during a time of instability arguing that there are risks we know about (those can be managed) and there is this other category of risks that we don’t know about.
In fact, we don’t even know that we don’t know about them.
16 years later, I’d argue the same is largely true of finance.
"Without data, you’re just another person with an opinion".
William Edwards Deming, an American engineer, statistician and author, said that.
It’s one of my favourite quotes.
I use it almost daily.
Because investors driven by data are more successful.
(That’s a fact too).
The investing industry often talks about alpha.
In simple terms, alpha is a measure of outperformance compared to the market.
The evidence shows that fund managers are finding it increasingly difficult to generate alpha.
According to a book called "The Incredible Shrinking Alpha", there are 4 reasons..
Investing isn't supposed to be exciting.
But the financial media likes to make it seem so.
Why do so many people seem to seek excitement in investing?
There’s a couple of reasons.
Most investors still use actively managed funds.
In other words, they pay a fund manager to buy and sell the right stocks at the right time.
But, in general, how well do active funds perform?
The answer is worrying for investors.
Technology and investing have many parallels.
Both constantly improve.
Both evolve over time.
Newer versions constantly replace what was once seen as the best.
And both are passions of mine.
Some have even described one particular type of fund as having a ‘cult-like status’.
Fans of Apple can certainly relate to this.
It’s deeply ingrained in the human psyche that taking action is a positive thing.
And in many cases, it is.
But successful investing means doing exactly the opposite.
Even if that feels wrong.
And it will.
I recently discovered Safal Niveshak.
Meaning ‘successful investor’ in Hindi, it’s a blog created by Vishal Khandelwal, aimed at helping investors become intelligent, independent and successful.
His ideas about wealth and investing are interesting.
And I want to share one with you.
One which I think about almost every day…
Life is simple.
Why do we make it so hard?