A Thought on the Limits of Knowledge

I have heard it said many times:

When you have an undergraduate degree, you have no idea what you don't know; by the time you have a graduate degree, you have some idea of what you don't know; and when you have a doctorate, you know precisely what you don't know.

This is the circle of competence idea, which is unendingly valuable in all sorts of pursuits. It is absolutely critical in investing, where there are 100 ways for a company to fail. It does little good to know 50 of the ways, since you are still wearing restrictive blinders in such a situation. Knowing what you don't know is a critical tool to evaluating an investment. Anyone can concoct a bullish case for a stock. What is more important is the ability to identify the presence and degree of various risks to arrive at a risk-adjusted idea of intrinsic value.

And, of course, this implies that an investment with fewer risk factors is usually better.