Knowledge or Understanding
Updated: Sep 11, 2019
The topic of this article has been a subject of discussion around our household for some time now. Being the parent of four millennials has exposed me greatly to the efforts of schools to introduce computers to the classroom. I have always argued that computers are a tool, like a hammer, that does not change the required outcome of the task, rather it makes it more efficient. Our discussions typically center around the difference between knowledge and understanding. Google has made it easy and convenient to know things, however I believe that it also gives a false sense of understanding. I see the quantitative investing through the use of algorithms as being knowledge based, not based upon understanding. Finding correlations is a fairly simple task given the large amount of computing power available. In my opinion, very little effort is spent understanding why and how those correlations exist. I believe there is significant risk to these approaches if and when correlations break down. Active portfolio managers on the other hand, should have an understanding of their companies and the dynamics of the industry. It is this understanding that will allow us to make investment decisions regardless of the environment. It has been somewhat humorous the past week watching "knowledgeable" algorithm based funds piling into a number of our companies with no regard to price. When understanding is backed by discipline, investment results are superior and repeatable.
"Much learning does not teach understanding."
Heraclitus (540 BC - 480 BC),