A friend asked me the other day ” So you read so much but how do you differentiate between what’s true and what isn’t. And once you do how do you know that that is true?”. I answered back “You just do”.

How do we know anything to be true? Let’s take gravity as an example. Everyone from Newton to a five year old, from England to Zaire believes in gravity. It’s become fact. Something that has been proven and tested, regardless of location or era. History has proven that gravity exists. Now I’m sure there is a possibility, albeit remotely, that the Laws of Gravity may at some point in the unpredicted future cease to hold true, failing partially or entirely, and a “new” gravity will come into being. But until then anyone who would advocate such a preposterous claim would be labeled an idiot and banned from public opinion.

So why should the economy be different? As in relation to gravity, economics has its laws. Theories that have been proven in the marketplace over hundreds of years. Laws such as supply and demand, the Law of Diminishing Returns, and so on. If someone were to come and present a theory of a “new” economy it should be opposed with the same vehemence and defiance as one who questions gravity.

There a famous saying on The Street that “Perception is Reality”. But there are a few short words that should precede it – “In the short term…”

If one threw an object into the air and claimed that the object seemed to be defying gravity he would quickly be told to wait just a few seconds and then to claim his feat once more. Similarly, in economics one may see something, albeit temporarily, that seems to contradict that which has been taught and accepted over the ages.

Warren Buffett once said that you really don’t need that high of an I.Q. in order to invest accordingly. He was, and still is, an avid reader. He reads many papers daily, pouring over annual and quarterly reports, reading up on matters of both fact and opinion. Warren says that among his books he came across a book written by Ben Graham. “It just made sense” he said. He would later learn much of the mainframe for his value-investing strategy under the tutelage of Graham.

This we believe is how knowledge and hence successful investing is attained. Read, question, answer and then question those answers. No one is always wrong and no one is always right. Even Buffett himself has since changed parts of his investing philosophy. Don’t be afriad to do the same and change your take on an issue. Learn from everything but most importantly learn to think for yourself.

As for truth, investing is about what makes sense and works. So if its logical and you could apply it, use it.



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