Everyone is an Expert

“The more you know,

 

the more you know

 

how little

 

you know”

Aristotle 384-322BC

 

Some things never change! It seems this gem is lost on a lot of people.

Beware of those who are so certain and willing to give advice, qualified or not!

Skip forward 2000 years, and there’s wisdom aplenty.

Adam Smith was a Scottish philosopher and is considered to be the founding father of Economics.

Adam was a fan of self-interest.

He believed it was the most powerful building block of the market system that ensured what people wanted, and at what price they were prepared to pay, was produced.

He was also an advocate of specialisation – doing one thing and doing it well and relying on others to do their bit, i.e. the ‘division of labour’,

In other words, we should become experts at what we do and let others do what they do well, and productivity gains and enhanced outcomes will be the result.

Now, while the intricacies and efficiencies of pin-making illustrated Adam’s treatise, 21st century folk with fingertip access to cognitive tools can be tempted to think they know everything about everything.

Aristotle would be shaking his head.

A recent Yale University study in the Journal of Experimental Psychology concluded that search engines and the overabundance of information they provide at the touch of a screen, are making us think we know more than we do.

A little information can be a dangerous thing. We probably all know someone who shouldn’t have access to symptomchecker.com!

“Searching the Internet may cause a systematic failure to recognise the extent to which we rely on outsourced knowledge,” the study said. “… People mistake access to information for their personal understanding of the information.”

This misconception is so apparent when it comes to investing generally and particularly property investment. Many people are easily influenced by the media, whose mission is to sell stories and bolster audience numbers and ratings. So their modus operandi is often to exaggerate, catastrophise and to disturb with misleading ‘half baked’ headlines and cherry-picked information. They also generalise. (remember the misnomer of the property market)

Being at a backyard BBQ seems to bring out the philosopher, politician and religious acolyte in many of us too…

It’s a notorious source of dubious investment advice, often from some who haven’t invested in their lives!

Sometimes it’s motivated by bad experiences, other times ignorance, other times fear and even by jealousy.

Making an investment property decision is an important one that should be made on the balance of evidence and qualified, professional advice, tailored to your particular circumstances, goals and preferences and importantly, your risk profile.

Taking control means deciding you want and need to create a better future, making a plan and then seeking support to implement it.

So, who are the team members you should gather around you and lean on?

(more…)

The Study of Scarcity

“…you can’t always get what you want.”

 

The Rolling Stones may have said it in the most entertaining way in the late ’60s, but economists have been saying it for centuries,

Economics is the study of choice.

The pillars of modern mainstream economics include the concepts of scarcity, opportunity cost, self-interest, specialisation, market dynamics and market failure – all of which are relevant to an understanding of the reasons to invest and why property provides a relatively safe and predictable way to do so.

The fundamental problem we all face is scarcity, and it applies to us collectively and as individuals.

Typically, your income is the resource you have at your disposal to satisfy your wants and needs.

Income is the return to the factors of production. There are four types of factor income:

Most of us will earn a wage or salary in return for labour,

but we also have the opportunity to

earn income in other ways too.

 

Once you have earned your income, there are only three things you can do with it; you can spend it, you can save it and, you can pay taxes.

There are no other alternatives!

Most people have the tax taken out automatically before they get to make any choices about consuming or saving. What you have left is disposable income.

Disposable Income = Gross Income – Taxation

Our predicament compels us to make choices. As rational human beings, it’s assumed that we all try to allocate our scarce resources to our competing needs and wants to maximise our satisfaction.

We are all economists!

In the next section, we will examine how we make those choices.

How do we as a nation and as individuals

increase our standard of living

by reducing scarcity and

enhancing our choices in life?