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Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Make Tough Decisions Easy

Personal_Finance / SME Jun 18, 2015 - 07:16 AM GMT

By: DailyWealth

Personal_Finance

Mark Ford writes: About 20 years ago, a professor of philosophy introduced me to an idea I have used to clarify my thinking, cut through confusion, and make business decisions time and again. You may find it as useful as I do.

We were having lunch, and the conversation turned to Nietzsche, the German philosopher and poet. I knew a little bit about Nietzsche. I knew he was anti-religion (as we say today) and believed man could perfect himself by self-assertion – an idea that made its way into the rhetoric of the Third Reich.


The professor told me that Nietzsche had many other interests, including classical philology, art, antiquity, and music. But it was what Nietzsche had said about information and knowledge that most intrigued me...

According to the professor, Nietzsche pointed out that there are fundamentally two kinds of knowledge: "erfahrung," which he defined as knowledge based on experience, and "wissen," i.e., knowledge based on consuming (reading, hearing, or watching) secondary information, like books, speeches, and television.

We know not to touch a stove from experience. We know that Earth revolves around the sun from information we have consumed.

Nietzsche was obviously aware that the human mind is efficient at processing both kinds of information (let's call them primary and secondary), and he surely knew that our progress as a species is a result of our ability to do both.

But he foresaw a shift in the value we placed on wissen versus erfahrung. He saw that access to secondary information was increasing and predicted that would only accelerate with time. And he worried that the essential value of experience-based knowledge would gradually be downrated, so to speak. And that information-based knowledge would dominate.

I had never given much thought to this distinction between primary and secondary knowledge. My belief that touching a hot stove was bad and my belief that Earth revolved around the sun seemed equally valid to me.

But ever since that conversation, I've often asked myself, "How do you know this is true? From personal experience or from secondary information?"

And that has helped me become a better thinker in some ways, and as a consequence, a better arbiter of options and maker of decisions.

It has also helped me understand how it is that so much of what we took as an indisputable truth 10 or 20 years ago, we see as amazingly dimwitted today. (The idea, for example, that eating cholesterol raises one's blood cholesterol levels.)

Nietzsche was worried that the growing availability of secondary information would produce more "truths" based on secondary information and that eventually, educated people would begin to treat secondary information as equal, or even superior to, experience-based knowledge.

I think he was right.

These days, most people – and especially "educated" people – are more confident of wissen-based knowledge than erfahrung.

We might be modestly amused by an entrepreneur's explanation of how he started a multimillion-dollar carpet-cleaning business. But we put more faith in a fact-filled book about entrepreneurship written by an author who never even sold iced tea as a kid.

I'm no exception. I know from experience that when I invest in a business about which I know little or nothing, I lose all or most of my money.

Yet, I can still be tempted to invest in such a business if the business plan has amazingly good numbers, superb credentials, and solid testimonials.

I am tempted to put aside the knowledge that is in my bones in favor of the facts and figures in my head.

Another example...

We know from experience that we can't trust politicians – whatever party they belong to – to do what they say they will. Yet every election year, we find ourselves hopeful that one of them will be different. We ignore our experience and vote for the candidate whose speeches and campaign propaganda make the most "sense" to us.

Since the beginning of the 21st century, the amount of information instantly available to us has increased a thousandfold. Looking for answers today has become a challenge not of finding, but of sifting through.

And it's not just information, per se. It is the rhetoric of the global Internet-connected chat room where smart people with opinions assemble data, then analyze and interpret them for us.

And here's another thing: Much of this secondary information is so well – and persuasively –presented that it feels like experience.

When secondary information feels like experience, we often accept it as truth... truth that is equal to the truth we know from experience.

Instead of using our experience to judge the validity of facts and figures (which, let's be honest, can be rigged to "say" pretty much anything), we judge the validity of our own experience by them.

It's really remarkable. We know how easy it is to manufacture information. And we also know that some people will do almost anything to have their way. Yet, many of us never make the connection between the corruptibility of man and the corruptibility of facts.

When I think about bad decisions I've made in business, it is most often a case of my having favored information over experience.

Case in point: A former business partner and I spent a year attempting to succeed with a publication aimed at new mothers. We were convinced – by the numbers we had come up with – that it was going to be a huge winner for us. The fact that neither of us had any experience in the industry didn't faze us.

The result: We were a quarter of a million dollars in the red before we gave up.

Another example: All the direct-mail publishers I know have given advertisers free access to their lists in exchange for a split of the advertisers' net profits. The publishers waive their advertising fees when they see the amazing numbers "other publishers" have experienced "using this very same ad."

The result: a much smaller response than predicted by the numbers. (The publishers get little or nothing. But the advertisers have some new leads they didn't have to pay for.)

I'm not saying you should ignore secondary knowledge. On the contrary, it is the primary way we explore the unknown, and it is also an invaluable supplement to experience-based knowledge.

But when it comes to making important personal or financial decisions – the kinds of decisions that can cost you plenty if you're wrong – trust your bones.

Here's something you can do the next time you are overwhelmed by the thought of making an important decision.

Take a piece of paper and fold it in half vertically. On one side, put down everything you know from experience. On the other side, put down the facts and figures you've been told.

Then do this: Tear the page in half (vertically) and toss all those facts and figures in the garbage. You'll then have everything you need to know to make the right decision.

Will you ever miss out on a great opportunity? Possibly. But my experience tells me you'll go broke a hundred times before you succeed at something you have no experience in.

Regards,

Mark Ford

Editor's note: If you're interested in growing and accumulating wealth, you should see the opportunity Mark's team at The Palm Beach Research Group recently uncovered. It's an "invisible account" that allows you to build your wealth potentially tax free... and take money off the "financial grid." You can learn all about this idea right here.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

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