Chapter 4

The Anatomy of Information

Shortly after Al Qaeda terrorists flew jetliners into the World Trade Center, Donald Rumsfeld, then President George W. Bush’s Defense Secretary, was at a press conference. A reporter asked him for evidence Iraq was providing weapons of mass destruction to terrorist groups. The reporter said reports suggested no evidence of direct links between Iraq’s government and terrorists. The Rumsfeldian response:

Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tends to be the difficult ones.1

Wall Street immediately took ownership of Rumsfeld’s informational taxonomy. Ever since, it has ordered the mass of information on Wall Street.

A known known is information already known about a stock. This includes previous earnings reports, Securities and Exchange Commission filings, historical stock performance, investment ratings, shareholder information, ongoing litigation, historical financial ratios, including return on equity, book value, and all the other mathematical formulas that measure stocks. In short, anything easily learned about a stock is probably a known known. ...

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