I first wrote this in May 2017. I’m posting it here again to point out that getting to the truth and having a complete understanding of financial choices is a prerequisite for making informed, good financial choices.
People tend to think that someone else knows more than they do. This has always baffled me. Just because you don’t know something doesn’t mean that someone else does. I think people in general or not ok not knowing something so they want an answer. Then someone who sounds confident comes along and assures you that it’s this way or that way. Religion (belief in a god) works this way. People want the answer so many tend to believe something when someone of “authority” tells them an answer. Some people don’t even question the assertion and take it as fact. One of the greatest things a human mind can do is to question assertions. Why am I posting this? Well, people say that the “smart” money knows something. They certainly have specific knowledge about the companies that they are running but they have zero knowledge of a market top. Nobody knows that; they may have an opinion that may turn out to be correct but remember two things. First, understand the difference between a fact and an opinion. Second, remember that it’s ok to not know. And always question.
Update: This can also apply to personal finance. Accepting someone’s assertion or opinion without understanding it for yourself can lead you to make a poor financial decision. Example: Recently, a friend of mine, who was in the process of buying a home, was working with a mortgage broker who offered a 3% 30-year mortgage. The loan offer required paying a point (i.e. an upfront fee of 1% of the loan balance) in exchange for lowering the interest rate by 0.25%. The 1% fee would take more than six years to recover. Would my friend even own the house for six years? Would she have an opportunity to refinance the loan for a lower rate sometime within the next six years? Would she be able to invest the 1% fee for more than a 3.25% return? If the answer to any of these questions is yes, then paying the point is a poor financial decision. Since my friend assumed the mortgage broker to be an expert, she did not question if she could opt for a higher rate and not pay the point. She either thought that the offer was the only option or that the mortgage broker was giving her the best available loan. When someone doesn’t understand something, it is always best to keep asking questions until it’s clear. There’s no such thing as a dumb question, and there’s no reason for someone to ever feel embarrassed for asking a question. It’s far more important to end up with a clear understanding of the truth. This is true for personal finance as well as for investing.
The opinions, thoughts, analyses, stock selections, portfolio allocations, and other content is freely shared by GauchoRico. This information should not be taken as recommendations or advice. GauchoRico does not make recommendations and does not offer financial advice. Each person/investor is responsible for making and owning their own decisions, financial and otherwise.