STREET DOGS

Adapted from an article by Paul Merriman:

Abig part of investing is knowing what you know, maybe know and don’t know.

What we know — that we know. We know the past performance of proposed investments. We know, all else being equal, lower expenses lead to higher returns. We know diversifying across asset classes can reduce risk. We know the benefits of rebalancing. We know that most investors can’t beat the market.

What we know — that we don’t know. We know no-one knows the future. So why do so many investors waste so much time and money to behave as if someone does?

What we don’t know — that we don’t know. “Oh my God! I had no idea.” No matter how much time you spend listening to investment news and predicting trends most of the big market moves will come as a complete surprise and be attributed to things that weren’t on your radar.

What we think we know — but are wrong. Our brains are hardwired to make us believe we are right (we ‘know’) when it comes what to expect from a stock, a fund or the market which all too often leads to big bets with bad consequences.

What market makers want us to think we know. As the saying goes, Wall Street’s priority is what’s good for Wall Street. The industry is not filled with crooks. It’s filled with people who want to earn a living; people that want you to believe that recurring expenses are far less important than expertise and products.

What we know — but don’t do anything about. Most investors know that jumping in and out of the market is unlikely to lead to long-term success. Most know that trying to beat the market is unlikely to succeed. But they go on hoping that “this time it will work”.