Many years ago I read a quote by the French novelist Honoré de Balzac that struck me like a thunderbolt.
“The world belongs to me because I understand it.”
For the longest time, those words haunted me.
They seemed to explain why so many people struggle, not just as investors but as human beings.
We lack knowledge. We lack wisdom. We lack understanding.
Here’s an example from the investment arena…
For decades, I’ve known individuals without a cent invested in stocks or bonds. All of their money is invested in tangible assets like precious metals.
Many tell me they sincerely believe our financial system is rotten at its core. Why? Because the dollar is no longer backed by gold.
This is hardly a new development.
President Richard Nixon officially closed the gold window on August 15, 1971. After that, individuals and governments could no longer exchange U.S. currency for gold.
Some folks are astonished that – even without a gold standard – the nation, indeed the world, has continued to grow and prosper.
Don’t get me wrong. I own gold myself. And there is a case to be made for tying the dollar to gold at a fixed rate.
But there is also a respectable case against it too. (And it’s worth noting the hyperinflation gold bugs have predicted for decades now is still nowhere to be seen.)
Without getting into a lengthy debate about the pros and cons of a gold standard, what the “rotten to the core” advocates implicitly believe is great investors and businessmen – from Warren Buffett and Ray Dalio to Jamie Dimon and Jeff Bezos – don’t really understand monetary history or how the modern financial system works.
That argument gets less compelling each year as the so-called ignoramuses above earn huge returns for themselves and their shareholders while the gold bugs tell us – yet again – that they’re not wrong “just early.”
(By this measure, General Custer didn’t miscalculate his prospects at Little Bighorn. His arrival was just a bit premature.)
Perhaps there’s some flaw in the hard-money philosophy that its practitioners fail to appreciate.
In any event, it’s hard to argue the world is theirs because they understand it.
Then again, as you may have noticed, the planet is a big, messy, complicated place with a lot going on. Who can honestly claim to understand it all?
No one, of course.
Yet some are far less ignorant of the big picture than others. And – surprise, surprise – it’s not society’s “elites.”
In his excellent book, Factfulness: Ten Reasons We’re Wrong About the World – and Why Things Are Better Than You Think, the renowned public educator Hans Rosling explains how he posed hundreds of questions about poverty and wealth, energy and the environment, guns and violence, and global developments in health, education and gender equality to thousands of people in dozens of countries.
What he discovered was a story of massive ignorance, even – or especially – among well-informed, highly educated people, “including Nobel laureates.”
Rosling concludes, “Everyone seems to get the world devastatingly wrong. Not only devastatingly wrong, but systematically wrong… [The test results] are worse than the results I would get if the people answering my questions had no knowledge at all.”
Chimps hurling darts at the multiple-choice answers performed better.
How much farther can you get from “The world is mine because I understand it”?
Rosling points out that people are plenty smart enough to understand the state of the world.
It’s not a question of intelligence. Or even of substandard public education, although that clearly plays a role.
It has much more to do with the nature of modern journalism, where the mainstream media feed us a steady diet of “true facts” entirely out of context, leading people to believe the world is far more negative, more violent, more hopeless and more dramatic than it really is.
Rosling – who died in 2017 – made it his mission to install a “worldview upgrade.”
Adopting this worldview will make you a more well-informed individual… and a better investor.
In my next column, I’ll explain just how and why.