How to Create New Knowledge

In this article I want to discuss why self-created knowledge is an order of magnitude more powerful than the same knowledge consumed in a readily available format. I also want to discuss methods for creating and discovering new knowledge. Some of these methods I have learned while investing in financial markets and working on startups.

Self-created knowledge can often occur when one first discovers knowledge through personal experimentation and analysis, and later augments this understanding with existing knowledge. This understanding does not have to be completely original, but can also be personally created knowledge that is broadly available.

The way I got introduced to the power of self-created knowledge was completely by chance. But the impact of self-created knowledge was quite significant.

Therefore, before discussing specific knowledge creation methods, I want to tell a story that changed the way I approach learning.

In late 2008, when the global financial crisis occurred, to understand what had happened, I became interested in economics and finance. As an aerospace engineer working in LA, I had no prior experience with investing, economics or business.

I decided to invest a small amount into the stock market, to follow the stock market and the economy. I began to experiment and observe. I spent several hours per day analyzing the financial markets and capturing how they behaved. I also spent many hours analyzing daily economic reports to understand the U.S. and global economies. With time my understanding of the financial markets improved and I began increasing my investment stakes.

I was lucky that it was one of the best times for experimental learning for the stock market. In early 2009 most stocks were going up. So although early on I made several mistakes, I did not get discouraged, because I was still making good returns.

These early successes with investing and the enthusiasm of gradually understanding the financial markets made me take a much bigger risk.

Around mid 2009, perceiving the possibility of a lifetime opportunity for buying into the stock market, I invested my entire money into stocks!

So the stakes became high!

I still had not read a single book on investing but was only guided by daily experiences analyzing the stock market and the economic reports. I became so consumed with analyzing the financial markets, that many of my daily interactions and experiences became incorporated into it. The goal became not only to predict how the stock market moved, but to predict how and why the world changed.

In a sense the boundaries of knowledge fields had dissolved. I started looking at knowledge as representing how the world behaved as a whole.

Also encouraged by early successes in investing and the prospect of financial independence, I decided to start my first business startup.

A friend and I started an electric bike company in a beach town south-west of Los Angeles. Consequently, I quit my aerospace engineering job to fully focus on investing and this startup.

Only years later did the impact of simultaneously working on these two ventures, a stock investment fund and a startup, become clear to me. But in 2010, I was just trying to take the appropriate steps to make both of these ventures successful. Granted, I also realized in retrospect how stressful the simultaneous pursuit of these two activities was on my body and health. But that is part of another story.

Wanting to structure an investment fund, in July 2010, I began managing a second portfolio of outside money.

It was also clear that I needed to develop more structure in my investing approach.

After almost two years of investing and analyzing the financial markets, in September 2010, I decided to do an MBA in finance and economics.

The goal was to get exposure to the accepted financial theory and also to expand our electric bike startup into the UCLA campus, which has notorious parking and traffic issues.

During the MBA, getting exposure to financial and economic theory helped me solidify and tie together my understanding of finance and economics. I learned many useful financial concepts.

But I also realized how limited that theory was in describing the real dynamics of the financial markets. Similarly, there was a significant discrepancy between the real economy and the economic theory taught in school.

But more strikingly, I noticed that many of my classmates, who had prior theoretical background in finance, had difficulty viewing the markets or the economy in any other way than conveyed by the current theory. Their thinking was molded, solidified and limited to a single paradigm, since the financial theory had been their first exposure to the financial markets.

But since I had started analyzing the markets outside of the current theory, it was much easier for me to step out of it. I could look at the financial markets or the economy from an engineering perspective, as a feedback dynamic system with a forcing and gain function. I could also look at the markets as a game that’s a mix between chess and poker. And later, as I got more knowledgeable about entrepreneurship, I learned to look at the markets as a structure of innovation hubs.

After completing the MBA, I started working on a web startup. This was my second startup, but the first startup related to web (since the other was in electric transportation). I became really interested in web entrepreneurship and tried to learn by analyzing successful web entrepreneurs.

I was also learning from my own experiences with the web startup, while simultaneously investing in the stock market. Then something unintended happened, I started connecting ideas between analyzing stocks and understanding startup dynamics.

The newfound knowledge in entrepreneurship had helped me devise more interesting approaches of investing. This realization dawned on me while having stock related conversations with friends, who worked in hedge funds or investment firms.

I noticed that they did not have these insights about investing, since they lacked depth in entrepreneurship. An important reason for this outcome was that I was analyzing and discovering both entrepreneurship and the financial markets simultaneously. In my mind I was pondering on thoughts in both fields simultaneously, so after a while the ideas started to interact. This was a practical experience of something I call “Cross-knowledge”.

Since 2009, I have been managing several stock portfolios. Because my knowledge about investing was initially self-created, it became much deeper and more intuitive. It also gave me knowledge differentiation by having ideas and approaches that are not readily available to others.

Therefore, in seven years of investing, my main portfolios have consistently outperformed the relevant benchmark every year by a significant margin.

This in the world of finance is a very difficult feat.

Clearly there was significant luck involved in the timing and outcome. But the approach to learning, that was not initially planned, also played a large role.

So what are the knowledge creation lessons from this story?

In our current education system we sit in a classroom and receive knowledge on a subject or phenomenon. We take that information and store it, apply it to some standard problem and move on to another piece of information. After many years we collect all these standard pieces of information and apply them in specific situations. Collecting ready information becomes a habit and way of learning. Another article discusses the shortcomings of our education system.

When we start working, our supervisors tell us how something is done and we collect that information and apply it the same way. To learn a new subject, we pick up a book or take a class on it. We continue this approach and over time knowledge consumption becomes our only way of learning.

Unfortunately, this way of learning does not give us real depth but only a rulebook. The problem with a rulebook is that sometimes the rules do not apply if the game shifts, which is often the case in the dynamic world we live in. Also in the real world there are very few absolute rules and most phenomena have different cases and exceptions.

Self-created knowledge in contrast is a lot more powerful. Self-created knowledge usually comes with a deeper understanding of a situation and with underlying assumptions, including specifics and scenarios. Even if it is something that is widely know, if one has discovered it personally by experience, experimenting and analyzing, rather than having consumed from a ready source, it naturally has more depth and is a lot more powerful. It gives one a better understanding of the “Why” behind that knowledge. It provides one with stronger conviction and can easily be adjusted to new circumstances.

There is another much bigger advantage to having self-created knowledge. In the process of knowledge discovery, if one can uncover even two or three new connections or fine details, which are not widely available in existing sources, one gains knowledge differentiation. Knowledge differentiation, knowing something that is not widely available from existing sources, gives one a permanent edge in our competitive society.

Unfortunately, new knowledge discovery is difficult to do, because usually with our first introduction to a subject or phenomenon, we are given a set framework and boundaries, and are introduced to the scope of existing knowledge and terminology. After that it becomes a lot more difficult to think outside of the existing framework/boundaries and create our own paradigm.

Although my story was specific to understanding the financial markets and the economy, there are several takeaways from this story that would help one overcome this paradigm challenge and aid one with discovering new knowledge.

Here are the takeaways on knowledge creation approaches that I have learned from my experience:

1. Start by experiment, analysis and own theory before reading

When trying to understand a new phenomenon, instead of naturally starting to read how it works (or taking a class), try to just observe what it is and how it behaves and come up with your own theories on how it works. It is fine to read how it has behaved in the past but avoid reading explanations or rules. Try doing this for some time (six months to a year) and then after having developed some personal theories, you can start reading the existing knowledge on that phenomenon. This although slightly more time consuming will help you develop a deeper understanding and also make it easier for you to think outside of the current paradigm.

2. Think about knowledge holistically and not confined to categories

Try to think outside of the currently differentiated/specified fields of knowledge. The real world is not divided into biology, physics, astronomy, economics, sociology, psychology, entrepreneurship, law, journalism, etc. It is a single world and a single system. We have decided to split up knowledge in categories so it is easier to teach at universities and easier to prepare people for set professions. But at the same time this split can get in the way of knowledge discovery. Knowledge is not confined to a field but is an understanding of how something in the real world functions. If you want to really understand something, you have to look at it as a complete phenomenon.

3. Become comfortable questioning widely accepted views

One should actively train to become comfortable challenging the most widely accepted concepts in any field of knowledge. Knowledge is not absolute and it has been changing since human existence and will continue to do so. It is difficult to objectively verify that the current state of knowledge is complete and covers all cases. With the exception of some aspects of physical sciences, most other fields are still evolving (not to mention that the world itself is changing). Even in physical sciences many boundaries can still shift. If Einstein, while still an obscure patent clerk, had not been comfortable questioning the highly revered views of Newton, he would have not discovered his theory of relativity.

4. Analyze a second, different phenomenon that is somewhat related

Try to simultaneously analyze a second phenomenon from a different but somewhat related field. I call this approach cross-knowledge. Incorporating a second phenomenon will help you discover in these two phenomena interactions that are important and others have overlooked. This will provide you with new ideas about the phenomenon and give you a more complete understanding of how that phenomenon interacts with its surrounding. In my story it was the relationship between stocks and entrepreneurship that provided new insights.

5. Shift perspective and look at it in a completely different way

In perspective shift one starts looking at a phenomenon in a fundamentally different way, as something that one knows from a completely unrelated field. Using a foreign concept to broadly describe a phenomenon or part of a phenomenon you are analyzing, can provide interesting insights. Since most knowledge in a specific field is created from that field’s perspective, shifting perspective can help one notice something new and come up with novel ideas. In my story it was viewing the stock market or the economy as a feedback dynamic system from engineering.

6. Do fundamental research about the world and experiment with life

Become comfortable doing daily fundamental research. Fundamental research does not mean you have to own a laboratory in your basement. When going through daily life, capture information on the behavior of different phenomena in nature, institutions, people and avoid explaining them with existing paradigms.

Just collect that behavioral information and try to analyze it. Also instead of doing what you are usually accustomed doing, become comfortable with experimenting with your day-to-day life. Experiments expose us to different scenarios of different phenomena and help us discover a more complete understanding of the world. Another article titled “Experimenting with Life” further discusses what I mean by that.

Mahatma Gandhi’s autobiography is titled “My Experiments with Truth”. There is something very powerful in the title. Real truth is difficult to find and you have to experiment to personally discover it.

So how should you approach that experimental discovery process?

So far I have discussed a broad approach to knowledge creation and would like to say few words on the process of knowledge creation itself.

1. When observing a phenomenon/experiment, first it is very important to accurately articulate the behavior of a phenomenon as observed, without connecting it to reasoning. The observation has to stand by itself at a distance without commentary.
2. Then one needs to clearly define every term that one is discussing in the observation to make sure that there is no ambiguity of expression.
3. Then later one can start generating a hypothesis (a process, which can be improved by new sources of stimulation) and looking for evidence to either confirm or refute the hypothesis, and if needed conduct experiments.

The process itself is iterative, but having the right broader approach can make the difference between noticing something new or remaining in the old paradigm.

So hopefully next time you are trying to understand how something works, instead of first referencing an existing source, you will create your own knowledge.

This approach may seem a tradeoff in time but in the long-run it could pay off mightily. It may seem you are “reinventing the wheel” but you are getting a lot more out of it. Sometimes reinventing the wheel could be key to long-term success. Another article about “reinventing the wheel” and long-term thinking discusses this question.

Since my backgrounds in engineering and entrepreneurship helped me develop a deeper understanding of financial markets, I researched some of the most creative thinkers in history to understand what contributed to their creativity (specifically in regard to breadth vs. focus). An article about creativity and its relationship to breadth vs. focus discusses that question further.

Lastly, as I talked about startups and entrepreneurship in my story, few words about startups. The initial foundation of a startup is by far the most important factor for its success and once that is laid incorrectly it is almost impossible to change.

If one starts out with experimentation, without reading current startup paradigm books on Lean Startup, Design Thinking, Traction Channels or broader entrepreneurship books, one is more likely to make many rookie mistakes. So using this experimental approach could be a dilemma when it comes to startups, since it could lead to a wrong foundation and the burning of the first startup. It is difficult to say if there is any significant value in that initial experimental failure of the startup. I don’t have the answer for that question but another article discusses failure and some of its implications.

Disclaimer:

Since I am a dyslexic, I am prone to spelling and grammar mistakes. Hopefully it does not distract from the substance of the article.

Thank you for reading this article :)