DO Understand What Is (Un)Important And (Un)Knowable

When people aren’t fully aligned to their financial goals, they often fall into the trap of short-term forecasting. What will the central banks do next? Will we encounter a recession following Brexit? At what point will Donald Trump be ousted from politics? Macro forecasting of this kind is often fraught with danger – not due to motivation or intention, but rather due to ability and implementation. By trying to become an instant expert in the unpredictable, humans are prone to making errors.

For this reason, we spend a significant amount of time considering what is important/unimportant and what is knowable/unknowable. When investing, we are dealing with uncertainty, and frankly, a lot of what we deal with is predictably unpredictable. We therefore want to focus on the important
knowables, while trying to protect against the important unknowables and ignoring the unimportant.

If an investor thinks about the markets under this framework, they are far more likely to remain humble in euphoria and steadfast in panic. It builds a tolerance for short-term market swings and redirects the human brain to the things that are important and knowable.

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