Knowledge Quadrants
Friends,
As Blaise Pascal once wrote, "I apologise that this letter is so long. I did not have the time to make it short."
A long, long time ago, a wise colleague shared a very useful tool with me. With respect, I'll share it with you. This is a tool which I use every day, and have found particularly helpful as I wade through the collection of fact and fiction on various investments.
It's called "the knowledge quadrant." It will help to understand if you take a blank piece of paper and draw a cross on it to create four quadrants. In the bottom left quadrant, write "DK and DK." Top left is "DK but K." Top right is "K but DK." Finally, write "K and K" in the bottom right quadrant.
Whenever we face dilemmas and decisions, or are charged with making important judgments, we operate in one of these quadrants. The task, then, is to first understand which quadrant we're in as these events arise, and then to respond, act, or not act, accordingly.
The first quadrant is a very dangerous place indeed, as it represents those occasions when we "Don't Know and we Don't even Know that we Don't Know." This is the territory of the teenager. Those of you who have had teenagers will know what I mean. (I've had three already, with one more trying to get there ahead of schedule, God help me.) This is the time when we are blinded by our dreaming, our lusting, our wishful thinking, and our uncontrollable desires for something just beyond our reach. I suspect that there are too many "teenagers" among us.
The second quadrant is one in which, I must confess, I find myself more often than not. It includes those times when we "Don't Know, but we Know that we Don't Know." It represents that period of transition from total ignorance to enlightened ignorance, if you will. If you can prevent yourself from being totally paralyzed by the recognition of your ignorance, this is a relatively safe place to be. The answer to this acknowledgment, of course, is to seek out more information. The challenge is that we often don’t know the personal circumstances of information sources. We don't know their motivations. We don't know where they're operating on the knowledge quadrant paradigm. Sometimes, the most convincing people don't have the first clue. Sometimes the most convincing people have a very clear understanding, but they prefer to confuse rather than to inform. A very interesting mix, to be sure.
Seeking new knowledge, new facts, and new wisdom is clearly the best path to pursue at all times. Unfortunately, perfect information is very elusive, and as a result, the same is true for perfect decisions. The best we can hope for in our quest for new knowledge is that, at the end of the day, we will have made more correct decisions than incorrect decisions. This said, we must still make decisions: buy, sell, or do nothing. Paralysis by analysis results in too many missed opportunities. The world keeps spinning, and those of us left inert, searching for the perfect decision, will spin off the playing field.
The third quadrant, as I'm sure you've deduced, represents those times when we "Know, but Don't really Know that we Know." We've made the transition from ignorance to enlightenment (maybe that's too strong a word, but let's leave it for now), but are not yet confident enough in our understanding.
Enter the bashers and dumpers at their greatest potential. How many times have you been greedy enough to make a play, done your own research (to whatever lay-level you find yourself capable), and then second-guessed your move in the context of negativity? The morass of negativity, appearing over and over and over, pounding on your brain in the context of a seeming crisis, strikes fear into your "buy" button finger and instead your finger crashes down on the "sell" button... right before a quick recovery.
Remember first and last, it's only money, and money, of course, is a renewable resource (just ask the Fed). Most importantly, though, win or lose, I look around me and I feel only love. Take every penny I own, and I'll not be personally destroyed. In fact, I'll barely even be dented. Reminding myself of that helps me to get through these up-and-down times. Hope you can look around yourself and say the same.
Of course, as you already know, the final quadrant represents those times when we "Know and we Know that we Know." Folks: We're not there yet, and we won't be, until and unless our investments strike it big and we’ve crystallized our profits. Until the day when we can say, "I work only because I want to work," or "My money makes more than I do," that final quadrant doesn't offer the big easy-chair with the built-in beer cooler (if that's what turns your crank). I still have Bre-X shares listed in my portfolio. I could have them removed in a moment, but they offer a ready reminder of what can happen when my greed, my arrogance, and my laziness stand between me and prosperity.
Of guarantees, there are none. This is just one of many imperfect decisions that we all make as we struggle and stumble to get from A to B. I vary daily in my assessment of which quadrant I'm in on various topics, depending on the subset of points under discussion. Most of the time, I would guess I'm operating somewhere between the second and third quadrants. Only time will tell. I have the time, and I'm in for the duration. Life is a journey. I try to find something to celebrate every day. This journey is a game... a great game, from where I sit.
With respect,
Kevin