Knowing what you don't know is important

The chart above is from Morgan Stanley and does a great job of converting the famous Donald Rumsfeld "known knowns" speech into a simple investment matrix for decisions. The matrix is a good way to look at different market situations when there are different levels of knowledge among investors. 

In the case of the "known knowns", all information will be included in prices. No surprises here. It has already been discounted. Known unknowns are where you may have a competitive advantage relative to others in the market. You know something, but others may not know it. Unknown knowns are when you may be in the dark and others have an information advantage. You don't want to trade in this situation. Of course, the cases of "unknown unknowns" are when we are all blind to possibilities. We are likely in this scenario with the war in Ukraine.