"Knowledge is power." Sir Francis Bacon (1561 - 1626)
... but knowledge can have a diminishing effect for its user(s) if they do not know how to use that "power" once it is obtained...
I believe that the prudent investor, assuming they choose active portfolio management (see my Socratic Model), will have the uncanny ability to seek, find, filter, and leverage information for personal gain via premium investment returns (without "timing the market")...
To illustrate my point, I have observed financial media and bloggers do a wonderful job of demonstrating knowledge (seeking, finding, and filtering information) but, for various reasons, they are less than adequate in demonstrating wisdom (leveraging the information). To be fair, I should point out that, just because their wisdom is not shared, it does not mean that it is absent...
For a recent example, financial media and bloggers have returned in full force to the popular position of doubting government and institutional economic reports, especially following last week's Consumer Price Index (CPI) report:
- Barry Ritholz, of The Big Picture, has consistently and intelligently doubted economic reports. He's now turned his sights on the Bureau of Labor Statistics and their apparent disconnect with inflation reality.
- Barbara Hagenbaugh, at USA Today, observes the faults of "core inflation," which excludes food and energy.
- The Capital Spectator adds to blogosphere frustration over the "tale of two inflations."
OK, so we know that the CPI is flawed. But what do you suggest doing about it?
From the prudent investor's perspective, however, it would seem that the end-user of knowledge should not care, criticize, or complain about "flawed" economic reporting because the flaws in those reports are already known to exist and are quite exploitable. For example, any disconnect from reality is impressively and almost instantly analyzed, dissected, and criticized by the top financial bloggers, thereby enabling the prudent investor's competitive edge over "the masses," who will often erroneously react to those same reports.
Please allow me to summarize this post and posthumously add to my post last week, which stated that the proliferation of financial information via blogs have made the markets more "efficient:" The potential for efficient markets has exponentially increased but the increase of knowledge in itself does not create efficiency. What creates efficiency is the effective leverage of that knowledge -- not its abundance...
Knowledge is power but knowledge is not wisdom...
TFPAuthor, Kent Thune, is the President and Owner of Atlantic Capital Investments, LLC (ACI), a fee-only, registered investment adviser based in Mount Pleasant, SC, near Charleston. ACI specializes in retirement, investments, and comprehensive financial planning.
Comments