Embrace the Uncertainty

by | Nov 21, 2017 | Asset Management, Investor Behavior

You can’t take a swim without getting wet.

I recently finished reading Professor Scott Galloway’s, The Four. If a deep dive into Amazon, Apple, Facebook, and Google sounds intriguing to you, definitely check the book out. I’m actually going to relate a passage from The Four to the idiom shared above. Galloway says in The Four that:

“Failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.”

I was reminded of Galloway’s profound words last week while listening to Patrick O’Shaughnessy interview Dhani Jones on Invest Like the Best. Throughout the conversation, Dhani refers to something he calls the “breeze of opportunity”, and the need to know when to seize it. Dhani wisely observes that, “Everybody in the investing world wants to be the first one, but no one in the investing world wants to take a chance”. To succeed, as Dhani has, you need the self awareness to recognize that the “breeze of opportunity” has brought you a chance worth taking. This is, of course, despite not knowing for certain whether it will work out.

The same concept creeps its way into conversations I have with investors all the time. We inherently want, and normally need, the long term returns of the stock market to fulfill retirement goals. However, nobody wants the volatility and temporary losses that come with those returns. This is, at least partially, what creates the equity risk premium. We all know that anything that suppresses the volatility of stocks in our portfolio must also suppress returns. Yet we need to continually reconcile this truism with ourselves because we don’t want to believe it. Here’s a great tweet from Corey Hoffstein of Newfound Research that encapsulates this concept:

So what do the innovators at gigantic tech companies, Dhani Jones, and successful investors all have in common? They’ve reached the same conclusion: In order to accomplish anything worthwhile, you must be willing to be vulnerable.

A few years ago, Brené Brown did a TED Talk about the power of vulnerability. In it, she discusses how, “vulnerability is the core of shame and fear and our struggle for worthiness, but it appears that it’s also the birthplace of joy, of creativity, of belonging, of love.”

By vehemently avoiding failure, embarrassment, shame, and regret, we’re also fundamentally avoiding success, fulfillment, pride, and joy. These are additional examples of the “inseparable twins” referenced above.

We can risk failure by experimenting, or not invent. We can risk embarrassment by taking a chance, or let opportunity pass us by. We can risk temporary investment losses, or accept lower returns. These are the trade-offs we must make.

How can we get over our aversion to vulnerability?

From what I’ve been able to gather, successful inventors learn to love the process of failing in order to succeed. Similarly, successful entrepreneurs learn to be invigorated by the high stakes nature of starting something new. Successful investors aren’t much different. They learn to embrace the short term volatility of stocks, in order to reap the long term returns.

No matter how hard we try, we’ll never be able to accurately predict the outcomes of future events. Knowing this, a willingness to be vulnerable and embrace uncertainty is our superpower. Use it wisely.

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