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#248: Don't be a Knowall. Let Go of the Past.

#248: Don't be a Knowall. Let Go of the Past.

Michael Berman, Ph.D.
March 10, 2025

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S2N Spotlight

We all have someone in our lives who thinks they know everything. Maybe we are that person. According to 2 famous psychologists who coined the Dunning-Kruger Effect in 1999, there is a cognitive bias where people with little knowledge or expertise tend to overestimate their own competence.

Expertise comes through hard-fought battles requiring effort and experience.

On the weekend, I triggered my own crisis of confidence while contemplating the way financial markets are likely to play out over the coming months and years, especially in relation to tarriffs. The biggest challenge to our personal growth, according to the Dunning-Kruger effect, stems from an innate unawareness to question whether we are correct with our views or beliefs. In plain English, we think we are always right.

On Saturday, I was explaining to my wife and daughter the economics behind the trade wars. Yesterday, Sunday, I was throwing out a whole lot of my old business books. It gave me a symbolic opportunity to cast away some of my old beliefs and welcome in new ones.

I have recently stumbled onto a number of new alternative data series; the one below is the World Uncertainty Index. I think the takeaway from today’s spotlight is that anyone talking with extreme self-confidence shouldn’t be regarded as a true expert.

The more you know the more you know you don’t know.

S2N Observations

In case you were wondering what the top hedge fund managers earned last year, this is likely to cause a severe case of envy.

For the sake of completeness, this completes the top 20. Not too shabby, I would say. I would also say that many of these guys are not suffering from the Dunning-Kruger Effect. I see the same names more or less each year, so clearly they know something or someone that us mere mortals do not know.

I also noticed with interest today in an article in the Australian Financial Review that Bridgewater, the largest hedge fund in the world, has launched its own All-Weather ETF. I think that further confirms the current trend towards low-cost, passive investing. This is a complete contrast to what I shared above with the top hedge fund managers earning massive fees. I think it reflects that there are only a few managers who are able to consistently outperform. Those managers therefore earn the lion’s share of the fees in the industry. To stay with the metaphor, they eat what they kill, and they kill a lot.

I wanted to end my observation with a wild chart that you might not have been expecting. We are currently living through potentially the greatest innovation age of our time with the proliferation of AI and the advancement of chip technology. So forgive me for thinking that an index dedicated to pursuing breakthrough innovations and disruptive technologies, the Kensho Moonshots Index, would be trading near ATH’s (all-time highs). Cleary not so, as it is suffering an -80% drawdown at the moment.