This is what’s going to happen

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We can’t change what has happened, nor can we wish the virus away.

Let me ask you one question:

Do you know more about what’s going to happen in the next 12 months today than you did back in January?

I don’t.

I have no idea.

Things change.

Things change all of the time.

The only thing certain is that the future is uncertain.

That was true in January and it is true now.

As Daniel Kahneman said, “The correct lesson to learn from surprises is that the world is surprising.”

That doesn’t feel too good, right?

Well, we all suffer from the Certainty Bias. Our mind’s pull for certainty has different consequences.  The mind likes nice, uncomplicated beliefs which can help us make sense of a situation.  Yet these beliefs often leave us trapped by our own – often false – perceptions.

Uncertainty is important.

Uncertainty is great.

Uncertainty comes in the form of a chance of a future reward. That itself is stimulative. Nature has built into our brains (dopamine neurons) a tendency to savor the possibility of future rewards and to put ourselves in a position where such a possibility is real.

Uncertainty is THE motivator of change

It fuels opportunity and drives growth in general.

Wonderful.

But hold on, isn’t investment success somehow linked to knowing to anticipating what happens in the future, which company will grow faster, which trends will prevail, and which economies will survive and strive?

Truth is, we simply cannot judge results in a probabilistic system over the short term because there is way too much randomness.

One way out of this dilemma for us investors is to train ourselves to consider a sufficiently wide range of outcomes. For example, by paying attention to the leading indicator of “inevitable surprises.” Or by becoming risk literate and obtaining the ability to deal with uncertainties in an informed way.

Risk literacy requires emotional rewiring, rejecting comforting illusions of certainty and learning to take responsibility and to live with uncertainty.

Do you believe in forecasts?

Back in December was there any market pundit / financial advisor who included COVID-19 in their forecast?

Exactly.

They claim they couldn’t have foreseen COVID-19. If forecasters claim an ability to foresee events, they can’t use events they didn’t foresee as an excuse – especially when unforeseeable events move the needle most.

These forecasts are useless if seen as predictions.

I have chosen to read more history and fewer forecasts.

I have more expectations and fewer forecasts.

If I say, “The next recession will begin in 2023,” I’ve made a forecast.

If I say, “Recessions occur roughly every 5-10 years,” I’ve expressed an expectation.

They seem similar, but they’re very different.

Expectations are healthier than forecasts because they provide a vision of the future stripped of all false precision.

What are the markets going to do in one or two years?

I don’t know.

You don’t know.

But time is on my side in the stock market. It can be on your side too!

And when stocks go down, if you’ve got the money, you don’t worry about it and you’re putting more in, you shouldn’t worry about it. You should be concerned about where are stocks going to be 10 years from now, 20 years from now.

I’m expecting markets to be up in 10 – 20 years from now.

That’s my time in the market.

Zero “timing the market” required for that.

Nothing has changed with my investment system

Why should it? If it had changed, it shows that I did not have a proper system in place that included market downturns. And downturns always happen.

When I expect the world to break every once in a while I prepare for events I can’t foresee and I don’t have to rewrite my playbook every time they happen.

I’ll prefer big cushions and room for error.

That’s why we serious investors have to answer this question upfront:

What do I do when my portfolio drops by 20%, by 30%, by 50%?  

Have that answer ready and then don’t get swayed by the daily news.

When my investment horizon is 10+ years why should I bother about the daily market moves?

Those time-frames do not match!

I continue to choose being a rational optimist in the long-run.

Let’s not waste a good pandemic. Opportunities are everywhere to thrive in the new abnormal or – to say it in a more optimistic term – the “New Now”.

The world is not ending. It is just changing and it’s going to get better.

We can’t change what’s happened, nor can we wish the virus away, but we can decide how we’ll deal with it – each one of us individually.

“Uncertainty is an uncomfortable position. But certainty is an absurd one.” – Voltaire

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