Here’s a great post by Ben Carlson discussing the inadequacy of knowledge. He discusses the fact that, despite increased awareness and knowledge of weight loss and health, humans are getting heavier and less healthy. It’s crazy to think that we can get smarter about something and yet the problem will become worse. How does this happen?
Getting healthy is easy. You eat right and you work out. You can get as smart as possible about how to eat right and work out right, but at the end of the day you ultimately have to be disciplined about eating right and working out. In other words, knowledge is nothing without discipline. And the same is true of money management. You can have the best strategy in the world, but if you can’t stick with it you’ll never see it through to success.
In the world of health the problem is simple. We have better food and workout options and bad discipline dealing with those options. So our superior options don’t actually help us. But the same thing is happening with money management. We have more understanding and better options than ever. But all these options create bad discipline so we’re seeing more short-termism and continued bad performance.
The craziest part on the finance side is that we already know lots of good strategies that will likely succeed. As Meb Faber has shown, the difference between most of the big popular strategies is fairly minimal over the long-term. But most people can’t stick with a good strategy and stay disciplined with it. Instead, short-termism and the alpha chase results in all the biases that lead to poor performance.
Knowledge is important. But having the knowledge necessary to succeed isn’t as important as having the discipline necessary to consistently implement that knowledge.