Why Do We Think We Know?
By Diego Alcalá Some people have twenty years of experience. Others have one year of experience repeated twenty times. From the outside, they look alike: the sa
By Diego Alcalá · Mon Sep 21 2026 · investing
By Diego Alcalá
Some people have twenty years of experience. Others have one year of experience repeated twenty times. From the outside, they look alike: the same résumé, the same gray hair, the same confidence when they speak. Inside, however, they are opposites. Confusing the two—believing that time alone produces wisdom—is one of the deepest reasons we think we know things we do not actually understand.
I say this carefully, because I am 25, and it would be absurd for me to boast about my experience. Perhaps that is precisely why I see this from a different perspective: age, years in a profession, and past results are constantly mistaken for real knowledge, although they are rarely the same thing.
Experience Does Not Guarantee Learning
Experience teaches us only when we reflect on it. Without reflection, repeating an activity for years does not teach you; it merely makes you accustomed to it. You can do something badly for a decade and, instead of learning, become very good at justifying why you do it that way. Misused experience does not correct mistakes. It polishes them and turns them into revered habits. Does that remind you of anything—or anyone?
This is especially treacherous in investing, where chance plays a substantial role in outcomes. Someone may have made money for years by being in the right market at the right time, without understanding it, and then claimed all the credit. Their “past results” feel like proof of skill, when often they are merely proof of a run of luck that lasted.
Living Through Something Is Not the Same as Understanding It
We rarely distinguish between living through something and understanding it or learning from it. Many people lived through the 2008 crisis or COVID, but that does not mean they understood what caused those events, what to do differently, or how to prepare differently. Being present gives you an anecdote, not necessarily a lesson.
The problem is that lived experience feels like knowledge. “I have already been through a crisis” sounds authoritative, but surviving a storm does not make you a meteorologist. Sometimes the experience even teaches the wrong lesson. The person who survived a crisis by selling everything learns to panic next time. The person who escaped through luck learns to trust luck.
The More You Know, the More You Recognize What You Do Not Know
A well-known paradox in psychology helps explain much of this. David Dunning and Justin Kruger showed that people with limited competence can overestimate their abilities, in part because they lack the knowledge needed to recognize what they do not know. Incompetence can come with its own blind spot.
Real knowledge works in the opposite direction. The deeper you go into a subject, the more you discover how much you still do not understand. That is why genuine experts tend to speak with more nuance and fewer certainties than beginners. “I know that I know nothing” captures that Socratic humility: the recognition that the map of what we do not know grows faster than the map of what we know.
The Dangerous Investor Is Not the One Who Knows They Do Not Know
That brings me to the real danger. In finance, the investor who does the most damage to themselves is not the one who recognizes their lack of knowledge. That person is cautious, asks questions, takes precautions, and prepares. It is the person who does not know that they do not know: the investor who confuses confidence with competence and bets heavily on foundations and assumptions they believe are solid, but are not.
I have written before that what truly destroys wealth is not what you know could happen, but what was never on your radar. Someone who recognizes their blind spots at least builds defenses against them. Someone who believes they have none walks confidently toward a cliff they cannot see. Ignorance can be managed. Ignorance disguised as certainty is what ruins people.
Humility as Protection
That is why I maintain that intellectual humility is neither a decorative virtue nor a performance of false modesty. It is a practical tool for protecting wealth. People who recognize the limits of their knowledge diversify, maintain liquidity, avoid leverage they do not understand, and ask, “What if I am wrong?” before committing their capital. Those behaviors may look uncertain; in reality, they are the behaviors of an experienced investor.
I have also argued that humility is a competitive advantage in investing. Humility and prudence do more than accompany each other. Arrogance is itself an undiversified risk. Someone who believes they know everything does not protect themselves against what they do not know, because they will not even admit that there is something they do not know.
Taking Your Experience Across a Border
For a Canadian or other international investor considering the United States, this distinction deserves particular attention. Experience in your home market is a starting point for questions, not proof that you understand the next market. Familiar-looking businesses, properties, or financial statements can tempt you to assume that everything else is familiar too.
The practical question is not simply, “Have I done this before?” It is, “Which parts of my experience actually apply here, and which assumptions have I not tested?” Asking a qualified local adviser to explain an unfamiliar issue is consistent with competence. It is not an admission that your previous experience has no value. The point is to recognize its boundaries before putting money behind it.
We believe we know because we confuse years with learning, lived experience with understanding, and confidence with competence. Sooner or later, the market charges us for that confusion. The mark of a good investor is not the certainty with which they speak, but the quality of the doubts they allow themselves to have. Knowing that you do not understand everything does not weaken you. It may be the very thing that keeps you safe enough to stay in the game.
How much of what you believe you “know” about your money is real knowledge, and how much is simply confidence you have never put to the test?
Adapted into English from Diego Alcalá’s original article in Comprando América.