It is 8:05 AM: my cup of coffee and Financial Times are before me as I prepare for US markets to open. Andrew Hill, writing the “On management” column today, presents a chilling precis on BP and the snail’s pace of corporate culture change with far wider implications for investors: “A safety survey of the Transocean crew on the rig concluded, before the disaster that they “don’t always know what they don’t know. Similarly the most damning charge against Richard Fuld, Lehman Brothers’ boss, was that he failed to recognise pressure building up in the bank until it was too late.”

Selective attention, bounded rationality, denial— there are lots of words for it. 50 years ago, behavioral scientists recognized that people can only manage about 7 front-burner matters at a time. We know this. Mostly, what we don’t know is not unconscious— it is just beyond reach in the foggy domain of the preconscious: it is the stuff that has reached the back burner. But if you throw enough volatile ingredients no longer immediately interesting into one pot and let them simmer what you get is a very big boom!!!

What we don’t think about as investors is that behind fundamental and technical analysis, are the unknowable knowns 1) of the market as a system ;2) of the corporation as a subsystem; and 3) of the manager and worker as subsystems within subsystems.  As investors, beyond our customary prudence, we must reckon with recognizing as fully as possible, the systemic magnitudes of uncertainty hidden in what we might know, if we thought about it, but don’t. Within each interactive system: Market, firm, individual, the tension between known and unknown known is continuous.

In literature, this is called “aporia” — a tension between two poles, irreducible to a compromise position.  Samuel Beckett was its king. His first short story, “Assumption”, written in 1929, begins, “He could have shouted and could not”. How like all of us: focus here means no focus there.

What can we do? Construct our investment narratives with the dilemma in full, clear sight. Though we understand what lies behind our limited liability shares, we have no idea what our corporations do; neither do they. Invest accordingly.

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Aporia: On knowing. On not knowing.


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