A year ago I was commenting about a quite dangerous duo for our personal finance, and life in general; I talked about the risks that posed to fall in the comfort of ignorance and indifference.
The main take was that sometimes people avoid facing uncomfortable truths, and prefer to continue their life wrapped in indifference. Specifically speaking of money issues, such as saving for retirement.
Judea Pearl, a renowned PhD in Computer Science and Philosophy—awarded with the Turing Award for contributions to the field of Artificial Intelligence in 2011— presents another dangerous pair: Ignorance and Arrogance, in its latest book: “The Book of Why”.
This odd couple is presented while talking about elements of mediation in the study of causality. When addressing the anecdote of the unfortunate death of sailors because of scurvy in the late nineteenth and early twentieth century. With the benefit of modern science, and the relationship between this fatal disease and vitamin C deficiency, it seems foolish to deny such evidence. In reality, with decades of anticipation it had already been found that the presence of citrus fruits in naval expeditions helped in an important way to avoid these losses.
Unfortunately, in some expeditions to the Arctic and Antarctic, these measures were ignored, under the assumption that scurvy actually showed up due to the consumption of tainted meat. The arrogance of a scientist, with inconsistent evidence, who was unaware of what he faced, had fatal results that could have been avoided.
In the case of investments, it is always important to participate with enough humility to accept that we do not know everything and we are not infallible. The risk lies in the fact that we are considerably more scrupulous with our mistakes, while as far as our successes we move on, foregoing any conscientious study.
In this way, we fall victim to our ego and arrogance, without paying attention to what we may no longer know. It is fair to recognize when we won by luck, or due to something unforeseen, yet effective.
“…There are things you do not know you do not know”Donald Rumsfeld
This phrase attributed to the Secretary of Defense Donald Rumsfeld, advises us to move on with skepticism and to be diligent to accept that we do not know everything.
In a global market with a marked trend in the last decade, it is likely that there is a segment of investors, or managers, that attribute their success to pure talent, and this is a dangerous combination. We are always in time to correct course, to do a study not only about what has worked for us, but also about why.