Wednesday, December 31, 2014

The Certainty of Uncertainty

In my view, the best way to have a successful year in 2015 is to (1) prepare for the worst, (2) hope for the best, and (3) get ready to be surprised. In other words, nothing about the future is guaranteed.

That said, we still need to prepare ourselves for what may lie ahead, because often our 'well-laid' plans will 'surprise' us and work out for the best. Frequently, however, what we predicted and planned to happen isn't what happens at all. That's life.

And it's the same thing with investing. The so-called market professionals and pundits purport to tell us what lies ahead for both the economy and stock prices. Sometimes they are right but more often they are wrong. See The Big Economic Unknowns of 2015, From Unemployment to Oil.

Uncertainty is a fact of life. And predictions are dangerous --- especially those about the future. {But what other kind are there? And besides, they're fun to make.}

So the sooner we acknowledge that simple certain fact about an uncertain future, the better prepared we will be to handle life's many victories and setbacks alike.

The Consistency of Inconsistency, and How to Adapt Your Financial Goals tells the story of the certainty of life's uncertainties:

"From investing to world affairs, we tell ourselves that there’s so much information available that we can know what’s going to happen next. We tend to overlook that our certainty comes from selectively building a picture of the world that conforms to what we want to happen, not what will happen.

I see it all the time when people talk about trying to time the market by buying a bundle of stock at just the right moment. They’ll compile a list of recent events. Then, based on that list, they’ll express, with great certainty, that it’s time to get into the market. At that same moment, others will assert that it’s time to sell and get out of the market. It’s both entertaining and frustrating to hear different people use the exact same information to justify two opposite actions.

Unfortunately, the noise isn’t going to disappear any time soon. Change and uncertainty are consistent in their inconsistency. We don’t really know what will happen next, and we need to get better at living with that reality. We can start by putting the noise in context.

By accepting, or even embracing, the idea that uncertainty is part of the deal, that in itself becomes a type of certainty. Instead of being shocked by every change or unexpected piece of news, we adapt. We figure out another path that keeps us moving toward our goals.

If you do this yourself, you’ll soon discover that your certainty about uncertainty separates you from a lot of people. Just look around and listen. It’s mind-boggling how sure people are about what they “know” will happen in the future, even though their certainty is an illusion. . . .

Yes, it’s not easy to get comfortable with uncertainty. But as we know from the old saying, few things in life are certain except for death and taxes. There’s no reason to think we can’t learn to deal with the rest as it comes and end up pretty close to where we want to be anyway. It will just happen with fewer panic attacks along the way."

Summing Up

We were all told at an early age that there is nothing certain in life except death and taxes.

Nevertheless, we too often act as if nothing could be further from the truth.

We can affect most outcomes in a positive way, of course, and working diligently to do so is always a worthwhile endeavor.

That said, let's try our best not to be too shocked when the inevitable bad news arrives.

That's just life happening, and we shouldn't want it any other way. Why be bored?

That's my take.

Thanks. Bob.

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