Build wealth with good judgment
Want to build wealth? Develop good judgment. Good judgment will be one of your most important skills if you want to build wealth over time.
Let's look at why it's important for you to develop good judgment - and not necessarily rely on the judgment of others - especially those who you might consider "experts."
Here's an example. A New York Times story on August 22nd, 2009 (almost a year ago) stated: "Central bankers from around the world expressed growing confidence on Friday that the worst of the financial crisis was over and that a global economic recovery was beginning to take shape." At first glance, you might be encouraged. After all, these central bankers are among the "elite" of the financial world. You don't get to run a country's central bank unless you have a fairly high level of financial knowledge.
There's also the fact that central bankers have access to loads of information - some of which people like you and me cannot access. So, in a sense, they know more than you or me.
Sounds like a pretty powerful combination: more knowledge, more information. Pretty much sets them up to be able to make an authoritative judgment on a matter as important as whether we're going to be coming out of this recession soon, doesn't it?
But wait. Let's dig a little deeper. If we're going to believe that they were right about the fact that we were exiting the recession, you would assume that they were also on target in predicting the beginning of the recession. Doesn't that make sense? After all, that knowledge and information should have put them in the position to know when a recession was going to commence, or at least that one was coming soon.
Alas, for the most part, the world's central bankers did not call the start of this recession. In fact, we were months into the recession before they conceded we were in one.
Our own central banker, Ben Bernanke, was calling the American economy strong and telling us that we should expect further growth, even after the subprime crisis broke out. He said not to worry about the subprime crisis because the rest of the economy was strong and would not be effected very much by that crisis. Here's exactly what he said on November 8, 2007 - right before the recession began:
“Our forecast is for moderate but positive growth going into next year. We think that by the spring, early next year, that as these credit problems resolve and, as we hope, the housing market begins to find a bottom, that the broader resiliency of the economy, which we are seeing in other areas outside of housing, will take control and will help the economy recover to a more reasonable growth pace.”
Of course, we all know that he was wrong.
My suggestion: don't believe or trust the central bankers of the world when they say we'll soon be out of the recession. I'm not saying we won't be out of the recession. I don't know. But what I am saying is that I'm not really giving any special weight to the opinions or pronouncements of the world's central bankers on the subject. Their track record has simply not been all that good when it comes to predictions.
At the very least, don't make important or substantial commitments with your investments based upon the recession ending soon. That's no way to build wealth.
So there it is. You've seen a good example of how to develop good judgment and why good judgment will help you build wealth.
Now, you've got to develop the patience and discipline to carefully analyze and logically break something down. But you don't really need to know a lot about finance to do that. What you need to develop is the ability to think clearly and logically, without emotion. Using your mind in this way will help you develop good judgment. And good judgment will be a great help as you try to build wealth.
Let's look at why it's important for you to develop good judgment - and not necessarily rely on the judgment of others - especially those who you might consider "experts."
Here's an example. A New York Times story on August 22nd, 2009 (almost a year ago) stated: "Central bankers from around the world expressed growing confidence on Friday that the worst of the financial crisis was over and that a global economic recovery was beginning to take shape." At first glance, you might be encouraged. After all, these central bankers are among the "elite" of the financial world. You don't get to run a country's central bank unless you have a fairly high level of financial knowledge.
There's also the fact that central bankers have access to loads of information - some of which people like you and me cannot access. So, in a sense, they know more than you or me.
Sounds like a pretty powerful combination: more knowledge, more information. Pretty much sets them up to be able to make an authoritative judgment on a matter as important as whether we're going to be coming out of this recession soon, doesn't it?
But wait. Let's dig a little deeper. If we're going to believe that they were right about the fact that we were exiting the recession, you would assume that they were also on target in predicting the beginning of the recession. Doesn't that make sense? After all, that knowledge and information should have put them in the position to know when a recession was going to commence, or at least that one was coming soon.
Alas, for the most part, the world's central bankers did not call the start of this recession. In fact, we were months into the recession before they conceded we were in one.
Our own central banker, Ben Bernanke, was calling the American economy strong and telling us that we should expect further growth, even after the subprime crisis broke out. He said not to worry about the subprime crisis because the rest of the economy was strong and would not be effected very much by that crisis. Here's exactly what he said on November 8, 2007 - right before the recession began:
“Our forecast is for moderate but positive growth going into next year. We think that by the spring, early next year, that as these credit problems resolve and, as we hope, the housing market begins to find a bottom, that the broader resiliency of the economy, which we are seeing in other areas outside of housing, will take control and will help the economy recover to a more reasonable growth pace.”
Of course, we all know that he was wrong.
My suggestion: don't believe or trust the central bankers of the world when they say we'll soon be out of the recession. I'm not saying we won't be out of the recession. I don't know. But what I am saying is that I'm not really giving any special weight to the opinions or pronouncements of the world's central bankers on the subject. Their track record has simply not been all that good when it comes to predictions.
At the very least, don't make important or substantial commitments with your investments based upon the recession ending soon. That's no way to build wealth.
So there it is. You've seen a good example of how to develop good judgment and why good judgment will help you build wealth.
Now, you've got to develop the patience and discipline to carefully analyze and logically break something down. But you don't really need to know a lot about finance to do that. What you need to develop is the ability to think clearly and logically, without emotion. Using your mind in this way will help you develop good judgment. And good judgment will be a great help as you try to build wealth.
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