Pause for a second. Sit back and quietly contemplate the circles. The one on the left represents all that you know. The one on the right signifies all that you do not know. The middle one we’ll talk about in a minute. Are these drawn to scale? No way! Your circle is enlarged thousands of times just to be able to see it on a piece of paper. The large one was reduced at least as much, since it would be gigantic, larger than the universe. These visuals will just have to do for our talk.
Because we are ego driven, we are impressed with, constantly work on, and fiercely defend that little circle. It could be said we even tend to ignore the big one. It’s a threat to who we are and we fear it. Scary stuff comes from that big circle. This is exactly the wrong way to think.
At least consider these questions: Where do all truly great things come from? Which circle would you think might be the source of miracles? Inventions, great ideas, music, original business concepts, what circle would you suspect they come from? What do Arnold Palmer, Michael Jackson, Dwight Eisenhower, Thomas Edison, Albert Einstein and Luciano Pavarotti have in common? They each believed their gifts of brilliance came from the unknown!
The middle circle is to show how futile is our focus on our little circle of knowledge. The middle one is Einstein. In other words, if you become a genius, it will pale next to the unknown. Should we learn and grow? Of course, but the whole point here is to learn to love and greatly appreciate the unknown.
How does this pertain to investing? We believe it’s a big part of the foundation on which any long-term successful investment philosophy must be based. The investor’s knowledge, the tools at his disposal are tiny compared to the unknown. When the ego says otherwise, beware. Stocks, as measured by the S&P 500, have returned 12% over the past 50 years, while the average stock investor has earned only 4% for the same period. Next time you start to become impressed with your financial insight, your crystal ball, remember the circles.