“When you know better, you do better.” These words, famously spoken by Maya Angelou, suggest that the more knowledge we have, the better we can do for ourselves. If we know something is bad for us, we will avoid it, if we know something can enrich our lives, we will seek it out and as we learn more about the world around us, boundaries will continue to be stretched and advancements will continue to characterize our society. But knowledge in and of itself is not enough. We must use this knowledge to change our behavior.
The problem is, it is in our DNA as human beings, to always look for the “quick fix”, the easy way out, the simple answer, the path of least resistance. So even though we know that these “solutions” are really not solutions at all, we are captivated by them. We are willing to disregard all of the knowledge that we have just on the off chance that maybe one of these schemes will work this time.
When it comes to investing, most people know that you can’t chase returns, that it is impossible to time the market and that strong returns one year don’t guarantee strong returns the next. The best strategy is to have a plan and to stick to it and not be swayed by emotions or fears or the unrelenting media. And yet, when there is a market downturn or even the first signs of unrest, many run for the hills. They sell everything and hunker down, preparing for the worst. Again, these people know better, but they don’t do better. And they don’t do better because despite the knowledge that they have, they are unable to control their behaviors.
The key to success as an investor is being able to use the knowledge we have to make better decisions. Decisions that are not predicated on emotions or fears or peer pressure, but purely on facts. So yes, when we know better, we can do better, but if and only if, we change our behavior to reflect all of the knowledge we have acquired.