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“One of the pervasive risks that we face in the information age… is that even if the amount of knowledge in the world is increasing, the gap between what we know and what we think we know may be widening.”
– Nate SilverThe Signal and the Noise

What you know   What you think you know

The equation above is true for me, you, and anybody who is being honest with themselves.  The fact that there is a difference (or Gap) between what we know and what we think we know is not a risk in itself.  The risk is not recognizing it and acting accordingly.

For us, the recognition of this potential risk is built into our process.  The following bullet points list a few characteristics of our process along with what we find beneficial about their ability to help us reduce the gap:

  • Rules-Based: taking our emotions out of it
  • Quantitatively Driven: minimizing our discretion
  • Backed with Research and Data: Support and Validation of our rules
  • Adaptable: things change

Do you recognize this gap?  And if so, how do you plan for it in your portfolio?   Is it built into your process?

“In all probabilistic fields, like investing and gambling, the best performers dwell on process.”- Robert Seawright