What’s The ‘Nature’ of Uncertainty?
Lots of research has been done trying to pinpoint the ‘nature’ of uncertainty. In reality, uncertainty has no ‘nature’ – it’s just part of everything you do in life. You can never know for sure what will happen next.
You’ve likely heard the maxim “it’s a feature, not a bug.” This originally was used by programmers in the early days of personal computers but has now worked its way into the general lexicon.
This aphorism has direct application for investors concerned about market volatility. If you understand that stock market ups and downs are built into the system, it’s easier to look beyond the short-term.
WHY LIFE IS ALWAYS SURPRISING
You can examine market history and that helps provide guidance for what might happen – but history doesn’t necessarily foretell exactly what will occur in the future.
One reason uncertainty abides even in the face of long stretches of history is that the markets are comprised of people, (investors), and people are chock-full of emotions.
The world is full of surprises. You may not always like surprises but they are essentially the ‘nature’ of uncertainty – surprises are the common thread throughout economic history.
The broad economy and stock market provide you with differing perspectives on uncertainty. Your favorite financial news channel or app constantly spews out economic statistics. Economic statistics represent a snapshot taken at a particular point in time. They are a picture of something that is already in the past.
By contrast, the stock market is aimed at the future. Instead of a snapshot, the market provides you with a movie complete with a story, tension, and ultimately a resolution. As someone said, “the stock market is like a paycheck from the future.”
In times of amplified uncertainty, it’s understandable that investors search for answers. There were several times at the onset of the pandemic when the stock market experienced 4% swings in a single day. We saw a bit of this again recently.
HOW TO EMBRACE UNCERTAINTY AND LIVE YOUR LIFE
Staying with your financial plan in turbulent times might feel like punishment – in reality, it’s just the price of admission to accomplishing your long-term goals. It’s easy to look at market declines in the past as opportunities, but think of the present declines as risk.
The life disruptions over the past couple years have likely increased the desire to understand the ‘nature’ of uncertainty.
The reason you can enjoy the returns from up markets is because you can withstand the down-market periods. It’s a feature, not a bug. Embrace uncertainty and focus on living your life. Start there. Ready for a real conversation?