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Author: Adamk0310 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 10413  
Subject: Re: 3 Things You Must Know Date: 2/16/2006 11:55 AM
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This post is in response to Seth Jayson's commentary of February 15th.

http://www.fool.com/news/commentary/2006/commentary06021508.htm


Yes, there is something beyond unknown unknowns. It's the only mathematical possibility remaning...and arguably the most dangerous. The Unknown Knowns. Things we know but do not know we know.

This one's a little bit harder to explain, at least for someone who isn't a paid journalist. But I'll do my best and I think you'll get the gist of what I am saying.

These are the things that are hidden in plain sight, so to speak. Think back to the internet boom. People were caught up in the frenzy, buying stocks that weren't worth the paper they were printed on. Or bits they were stored on. Whatever. Anyway, their greed got the better of them. Except of course, people that knew they would eventually get burned if they went Nasdaq-ing. People like my father, my English teacher, and Warren Buffett, to name a few.

How does Rumsfeld's speech apply here? The "known" here is that "these companies aren't profitable and aren't worth the prices the market is asking." When people chose not to let that pesky truth interfere with their investing, they might as well have not known it at all. Thus, the "unknown known" emerges.

How about lottery tickets? Conventional wisdom says that winning the jackpot is about as close to mathematically impossible as you can get. Yet, even though this truth is part of general human knowledge, people continue to pour billions into foolish (small f) gambling. The Powerball jackpot is currently $365 million, (which was so conveniently reported on MSNBC as I was writing this) and assured to grow if no one pulls that prize in. Most will not win, and will have wasted a dollar. All they need to do to escape this trap is to realize what they "know."

There is an upside. Because these are "knowns," they don't really require any new work to discover. All it takes to turn an unknown known into a known known is a reflection on one's personal reality, a willingness to listen to and consider other viewpoints, and the concession that one may not always be right about absolutely everything.

Hope you caught all that. It's an important concept, and one that Rumsfeld should have included in that gem of his.

Adam
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