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The Most Important ThingUncommon Sense for the Thoughtful Investor$
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Howard Marks

Print publication date: 2011

Print ISBN-13: 9780231153683

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231153683.001.0001

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The Most Important Thing Is … Knowing What You Don’t Know

The Most Important Thing Is … Knowing What You Don’t Know

Chapter:
(p.116) 14 The Most Important Thing Is … Knowing What You Don’t Know
Source:
The Most Important Thing
Author(s):

Howard Marks

Publisher:
Columbia University Press
DOI:10.7312/columbia/9780231153683.003.0014

This chapter examines what else is needed for successful investing: knowing what is not known. According to Henry Kaufman, there are two kinds of people who lose money: those who know nothing and those who know everything. Awareness of the limited extent of our foreknowledge is an essential component of sound investment strategy. A discussion of forecasts suggests that we have a dilemma: investment results will be determined entirely by what happens in the future, and while we may know what will happen much of the time, when things are “normal,” we can't know much about what will happen at those moments when knowing would make the biggest difference. The biggest problems tend to arise when investors forget about the difference between probability and outcome—that is, when they forget about the limits on foreknowledge. Overestimating what they're capable of knowing or doing can be extremely dangerous. Acknowledging the boundaries of what they can know—and working within those limits rather than venturing beyond—can give them a great advantage.

Keywords:   foreknowledge, investment, forecasts, investors, probability, outcome

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