The RIGHT answer is, the best answer, and should not be limited to what you know.
Above may sound a bit confusing, but I notice this as a problem in every facet of my life. As a very basic example, lets say you asked me how to run a small business. I would answer by organizing every aspect of the company using computer software. Someone else may answer using pre-software era solutions. Someone else may answer some hodge-podge of the two. Yet someone else may answer that running a small business is a bad idea, and give 100 reasons do not do it.
Every answer above in their own way, is correct. But RARELY do you find a person smart enough to answer with an answer they have no experience with as a solution. A great example would be if you asked me, I'd say use Google and find the top two highly rated book on Amazon on how to start a small business, written in the last 6 years and read them.
That answer, shows I am depending on others to have a better answer than my view of the world. And by reading the top two highest rated books on starting a small business, you will leverage the opinion of 100's if not 1,000's of Amazon book readers opinions. The books you target have a much higher probability of being informative, and you will likely gain insight into the best answer of how to start your successful small business.
Again, I can't stress enough how in every facet of life this is a core problem. Some doctors always answer with pills, or past experience. Rarely does a doctor advise "in this case, seek alternative therapy", etc. There is a practical side as to why humans behave this way. Prior to 20 years ago, frankly it would be too much effort to seek "what you don't know" to get the best answer. The effort to try to figure out what the right answer would likely not yield enough benefit to bother. Any answer tends to be somewhat right, just not usually the best.
You would have to go to a library, or some other institution, and out of that SUBSET of knowledge, try to figure out which book is best. Or maybe ask friends and try to network to find a person with ample experience to help you gain insight. And even then, what is the chances the person you find is TRULY that enlightened to give a significantly better answer than just muddling through yourself. Not to mention the cost of engaging a person may be high.
The world has changed
We can now answer, quite easily and cheaply, with what we don't know. The generation under 20 years old will become true experts on answering with what they don't know. I doubt anyone growing up exposed to Google will rely on a book in the library, or physically calling people to seek advice.
They will simply use Google, seek out forums, wiki's, blogs, twitter, or a dozen other methods of communication to gain insight.
One extreme example is CROWD SOURCING. A very popular example comes from china, where a video found shows a woman killing a cute kitten. The internet users rallied to find this woman and punish her. using 1,000's if not millions of participants watching and researching, the woman was found. Granted, this example isn't directly leveraging problem solving, but it does show how something that was impossible just 10 years ago, was done, with near zero cost, by people motivated to find the answer to "who is this woman in this random video".
More mundane examples is blogs and forums dedicated to discussing, dissecting, and distributing information. Another great example of the internet is Wikipedia for documenting "facts" and wiki leaks for allowing information to be accessible to the world, exposing corruption and "evil".
What does this have to do with investing?
One aspect of what I believe we are witnessing is the final assault on the old guard of financial processes. The existing approach is under immense strain as a core, select, few are given the power over the many. The approach of answering problems with what you know will fail in this ever moving, technologically fast world.
The Federal Reserve Bank is a prime example. The Fed answers with what it knows, and how ALL financial problems are solved in the same manner. Either print money, loosen monetary policy, ease credit restrictions, or use any means in its power to "stimulate" the economy. The Fed is trapped by it's own boundaries, of answering the financial issues of the US and the world by it's experience. What is needed is to fix the issues by society improving and enforcing laws, and by politicians leading the nation, not relying on the Fed to "fix this".
For future posts, I will use this sociological description to explain some of the dysfunction we are witnessing, the problem is "people answer with what they know".
This is one of my foundations for arguing against the US dollar, and why it is destined to fail. All entries in this series of posts I'll add the label "Financial Revolution".