By Brent Everett
"...As we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don't know we don't know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones." -- Donald Rumsfeld, Secretary of Defense
This quote has received a lot of attention because it's a brilliant distillation of a complex matter. And, it applies perfectly to investing - in which there are many unknowns of both types. In fact, the more you know about investing and the more you learn, the more you realize what truly are "unknowns." Another way to say this is that unknown unknowns become known unknowns. Even the greatest portfolio managers are humbled by the difficulty of creating excess return in a highly efficient market, but overconfident amateurs frequently believe it's relatively easy.