Most people in finance operate under a giant self-deception: they think future economic trends are much more knowable than they actually are.
The economy is like a complex ecosystem. You cannot alter one piece of it without causing effects elsewhere in the system. Investors who understand this reality can also understand (and avoid) the hazards of over-confident investing.
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If an investor hopes to minimize or avoid losses of this magnitude, they must understand that economies are complex adaptive systems – replete with feedback loops and black swans and power laws. Investors must approach the future with humility. And that means fearing risk more than craving reward. A humble investor will also insist on a margin of safety in each investment.
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Books mentioned in article:
Think Twice
More Than You Know
Fooled by Randomness
The (Mis)behavior of Markets
