The 3 Most Important Words in Finance

Posted November 22, 2020 by Ben Carlson

There are generally 3 stages of growth for a successful investor:

Stage 1. I know everything (when you’re first starting out)

Stage 2. I know nothing (after you learn a bit about markets)

Stage 3. I know what I don’t know (after you realize how hard markets are)

That last stage is difficult for many people in the world of finance to figure out. Or even if they admit it to themselves it’s difficult to let clients in on the fact that even the masters of the universe don’t know what’s going to happen next when it comes to the markets.

A number of years ago Jason Zweig interviewed the late Peter Bernstein and asked him some of the most important things he had to unlearn over the course of his career:

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Q. Over the course of your career, what are the most important things you’d say you had to unlearn?

A. That I knew what the future held, I guess. That you can figure this thing out. I mean, I’ve become increasingly humble about it over time and comfortable with that. You have to understand that being wrong is part of the process. And I try to shut up at cocktail parties. You have to keep learning that you don’t know, because you find models that work, ways to make money, and then they blow sky-high. There’s always somebody around who looks smart. I’ve learned that the ones who are the most smart aren’t going to make it. I don’t know anybody who left investing to become an engineer, but I know a lot of engineers who left engineering to become investors. It’s just so infinitely challenging.

When I first started out in the investment business I was always overly impressed with the smartest people in the room who seemed to have it all figured out about what was going to happen with certain stocks or the markets in general. It took a while but I eventually discovered it was those investors who had enough self-awareness to admit they didn’t know what was going to happen next and they didn’t have all of the answers who were truly intelligent.

The 3 most important words in finance are “I don’t know” because the markets will humiliate you without the requisite self-awareness to recognize your own deficiencies.   

 To continue reading, please go to the original article here:

https://awealthofcommonsense.com/2020/11/the-3-most-important-words-in-finance/