As The Aleph Blog points out, even the savviest investors have had some tough sledding through the current market environment. Those who achieve success, though, will eventually pass through four stages of investment knowledge, as they move from a sense of puzzlement and risk avoidance to greater clarity about the key drivers of the market. In fact, there are four stages of investment knowledge:
"Stage One is being puzzled, and knowing that you don’t know much. There is extreme caution and risk avoidance, and so much of the market appears to be random.
A little knowledge is a dangerous thing [in Stage Two]. It can come in the form of articles like “Ten Best Stocks to Buy Now!” or “The Simple Formula That Beats the Market, in One Tiny Book.” Whatever. The initial knowledge is typically a stripped-down version of what has worked in the past, and past results indicate future performance.
Stage Three is the rare point, because it comes after some failure in stage two, because the world wasn’t as simple as the few experts initially read would indicate. Stage three admits that the prior knowledge was very limited, and that investing is more complex than previously thought. This is a time of study, and modest experimenting in investing, learning risk control, and understanding oneself. What am I good at? Where do I grasp value better than others?
Stage Four is where the survivors prosper in a limited way. They know that the market is fickle, and have learned that their methods may be good in the long haul, but may underperform in the short run. They don’t panic, they keep learning, and they persevere in times of fear and greed. They invest as if it were a business, and are prepared for bad times, and don’t go crazy during good times."
The bottom line, as The Aleph Blog points out, is that successful investing requires study, review and constant tweaking of what works. While a few early losses may be dispiriting, investing is ultimately rewarding over the long haul.
[image: A Beautiful Mind]
