In making investment decisions it is important to understand the difference between that which we know and what we believe. They are not synonyms.
According to Dictionary.com, know is defined as, “to perceive or understand as fact or truth; to apprehend clearly and withcertainty.” Believe is defined as, “to have confidence in the truth, the existence, or the reliability of something, although withoutabsolute proof that one is right in doing so.”
For example, we know when and where the super bowl is scheduled to be played. We know which teams are planning to participate. We don’t know who will win. Never-the-less, legions of ardent fans are completely certain that their team will win. In other words, they believe.
Investors should be careful in making portfolio decisions based on beliefs rather than on specific knowledge. Of course, belief is not a synonym for wrong. It just means that it is important to continue to evaluate your assumptions and make adjustments as facts change.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®