As children we learned to love surprises and to fear the dark. For financial markets the greatest mover of stock prices, up or down, is the unexpected.
The unknown possesses more power than the known. How can this be? Are we not taught and often reminded of Sir Francis Bacon's famous assertion that knowledge is power?
Let's apply some logic here: If our capacity to acquire more power is contingent upon the acquisition of more knowledge, then any power not yet acquired presently exists as the unknown -- the hidden.
This has tremendous impact on our ability to reach our potential, not only as investors, but also as human beings...
"True wisdom comes to each of us when we realize how little we understand about life, ourselves, and the world around us." ~ Socrates (c.469-399 BC)
The gap between known and unknown is filled by perception. Once we realize that the unknown is greater than the known, we also realize that our perception is creating most of what we call “reality,” which may be disastrous.
The unknown has incredible power, primarily because we do not acknowledge its potential, or even its existence. This has broad and overlapping applications. Let's look at a few examples of how the hidden has harmed people:
- Assuming that large firms, such as Bear Stearns, Lehman Brothers,and Merrill Lynch cannot fail.
- Sharing with others details about you that they do not need to know.
- The false perception that real estate values never go down.
- The thinking that more money brings more security.
- Failing to recognize complacency.
- Saying "It's different this time."
- Saying "It's the same this time."
- The Titanic is unsinkable.
- With the acquisition of wealth, our capacity to borrow against it increases. A larger shovel only enables us to dig a deeper hole.
- If we give money/power to others, we increase our own potential for more money/power.
- It is not easy, if not impossible, to plan for the unknown; therefore, expect it and embrace the hidden and you will gain power.
"One's own self is well hidden from one's own self; of all mines of treasure, one's own is the last to be dug up.” ~ Friedrich Nietzsche (1844-1900)
If you are an active investor or trader, you already know that there is more to be gained by investing in that which is least known, understood or appreciated by the market but there is also more inherent risk involved and, therefore, more self-awareness and emotional intelligence is required. This lesson also extends to personal relationships and any other endeavor that requires embracing the unknown...
Ignorance represents what we do not know. If we know that there is much that we do not know -- admit to our selves that we are ignorant -- we become more powerful by leveraging the power of the unknown because we have revealed that which is hidden -- our ignorance.
When we learn that there is much more to learn about ourselves and the world around us -- that there is much “hidden” from our view -- we realize our own ignorance and become empowered -- we shed more light upon the dark -- and most importantly, we enable the discovery and awareness of our self.
I refer to this as wisdom…