Finding confidence amongst uncertainty
Over the past two years, the stock market has gone through a bull market, a bear market, and lots of mess in the middle. In total, investors have been with lots of worry and concern, and very little return to help offset the pain.
And there is a lot to be concerned about:
Are we on the brink of the next banking crisis?
Is the Fed going to publicly execute the economy?
In my conversations, people are naturally asking ‘What’s next?!’
I say "naturally" because we know that the future is unknowable, but our curiosity still gives us the empty yearning to know what lies ahead.
Daniel Kahneman, a psychologist and professor emeritus at Princeton University's Woodrow Wilson School and Nobel Prize-winning economist, has popularized the idea that we are tricked into believing that we understand the past, and because of that, the future should also be knowable. His point is that although we are good at logically interpreting the past, this does not translate into also being able to predict the future. Yet, we still seek the opinions of proclaimed experts as to what the future may hold: Which track is the storm going to follow? Who is going to win the football game? What will happen to the stock market next?
As legendary investor Warren Buffett put it, “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”
A few years ago, I decided that I no longer wanted to be burdened with the daily scrum of live financial news channel in my office. I didn’t need hours upon hours of pontification (usually with no accountability), the blinking lights and sound effects, nor the overly dramatized next "Breaking News" story. It didn’t make me a better portfolio manager nor advisor and I’ve never met anyone who had better results because they consumed more financial news. Therefore, I didn’t want to support a financial news network or business model that didn’t help me, or our clients make better decisions.
I also realized that one of the rarest phrases ever expressed on those channels is, “I don’t know.” And why would producers and sponsors of those programs ever encourage it? Nobody tunes in to hear a proclaimed expert admit to not having an answer. Furthermore, those admissions are seen as unhelpful, uninformed — even evasive.
As we think about the dealing with an uncertain future, we should ask ourselves two questions: 1) what might happen and 2) what is the probability that it may happen.
If we only see the world of investing as extremely optimistic (bullish) or extremely pessimistic (bearish), with no in between, then we limit our ability to make good decisions about how to best position our portfolios. When we accept uncertainty in our lives, we are less likely to be trapped by seeing the world as only black or white when the most probable outcome is most likely some shade of grey. Mark Twain summarizes this important point wonderfully, “It ain’t what you don’t know that gets you in trouble…It’s what you know for sure that just ain’t so.”
Life comes with no guarantees and few assured answers. And trouble likely comes to those who treat life decisions as having predictive or certain outcomes. Our mantra for clients is: Hope for the best, but plan for the worst. This is especially true in today’s unknown and uncertain environment. Then again, the future is always uncertain and unknown.
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