Early from my career, it seemed as if every other question was asked, which led to the same meek response: “I don’t know.” Curse, I felt stupid.
But with the passage of time, I realized that lack of knowledge was not weak – it was an opportunity. So, my response expanded to eight words: “I don’t know, but I will discover them.”
Now, regardless of the question, these eight words are the basis of the entire decision -making process.
The absence of certainty
All you know, the rule of your entire knowledge, rooted in the past and every decision you face around the future – an unknown and unknown future. We live in an uncertain world.
Where will the stock market go from here?
Will I be able to retire early?
How will the share price interact with the news?
Will we have a recession soon?
As a result, every decision it makes has a level of uncertainty, and therefore the challenge that investors face is how to weigh alternatives.
In general, successful investors are a very confident bunch. However, their success does not come from knowing the answer, but from asking continuous questions and wrestling with the unknown.
“The market hates uncertainty” – not so quickly
Every time the fluctuations in the market fluctuate, or that the geopolitical climate behaves, the financial “news” outlets begin to talk about how “the market hates uncertainty”. This comment indicates that there are times when the certainty is about the future, which is not surprising.
More precisely, the market’s information hates uncertainty – it makes their encouragement more difficult. Successful investors, however, flirt with uncertainty.
The fallacy behind uncertainty is that the market sometimes is not subject to bouts of uncertainty, the market is 100 %.
For every safety buyer, the seller takes an opposite position, and both parties believe they are shrewd. If there is no uncertainty, there will be no one to take the other side of the trade you want to follow.
Think about domains
Thinking about domains is the basis of probability thinking. Instead of chasing a “correct” answer, you can develop a set of reasonable results, each with the possibility of their occurrence. A narrow range of potential potential will serve you better than one prediction, accurately calculated but unlikely.
Unlikely because with many variables, an unknown future, accuracy is an illusion. This shift in thinking reduces excessive confidence and helps you to move in uncertainty more effectively.
You can make enlightened decisions, good assumptions, and educated predictions, but you still cannot know the future.
When you stop temporarily to admit that your investment thesis may be wrong, it will push you away from aggressive assumptions and poor due care and pushes you towards investments that suit the potential return with the level of risk. You have a slice of modest pie. It will help you sleep better.
Confidence and probability thinking
Practicing intellectual humility, which is the opposite of intellectual arrogance or imagined. In simple phrases, with the ability to say, “I am not sure” or “I don’t know” and Then explore And why not? ‘ It is a big tie between excessive confidence and non -hesitation.
When evaluating the risks about a decision, it is important to consider not only in your confidence in being right but also on the possibility of being wrong. When drafting a decision or plan, look at the full framework. This middle land where confidence and possibility is intersecting paths where enlightened decisions are made.
In the first days of November 2016, New York Times I expected that Hillary Clinton had a 85 % chance to win the US presidency. (Most news means had similar predictions). When Donald Trump won, people rushed to indicate that political commentators had sinned. But commentators did not say Clinton will Win. In fact, and Times It implicitly said that there is a 15 % chance that it would lose it.
When judging others, it is easier to choose between right and wrong than analyzing opinion on the basis of possibility. No need to give her a lot of thinking. Right or wrong – this. But most of our financial decisions are not very bilateral.
When you get out of thinking about the divorced woman, 100 % correct or 100 % error, and start thinking about the possibilities, you start to make the decision on hand. As a result, the process of making your decision improves because your decisions are no longer simply from black or white, but about calibration between all gray shades.
There is a high line between humility and hesitation
Health respect for uncertainty should not lead to paralysis of analysis – as fear of error prevents you from making a decision at all. The goal is not to avoid uncertainty; It is to identify it, weigh the possibilities, and to act with confidence.
Successful investors are not waiting for perfect information; They behave based on good assumptions and adapt to the emergence of new information.
You may have doubts about your choice is uncomfortable, but make sure to deceive yourself only
Yes, be confident of your decisions, but also realize that there are no guarantees. Possibility thinking will help you deal with uncertainty and Risk Management.
I realized that (1) “I do not know” is just a recognition that we live in an uncertain world, and (2) “but I will discover it” is an abbreviation to evaluate a set of results in the face of uncertainty, weighing individual possibilities and making an enlightened decision.
Sometimes you will get the expected result and sometimes you will get education. This is the ideal victory.
Keep focusing on the balance of your investment thesis being successful, with the financial and emotional cost of error. Your financial trip will be happier and less tired.
The next time you face a financial choice (or any decision), ask yourself: What is the possibility of different results, and how will I change if things do not go as planned?
Mastering uncertainty is not related to all answers – it is about knowing how the probability is weight.
As always, invest often and wisdom. Thank you for reading.
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