The Paradox of Certainty

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Having been a trader and investor for much of my professional life, living with uncertainty has been part of the territory. Managing risk requires acceptance of uncertainty, for within uncertainty lies opportunity. The future is uncertain and its expression can be non-linear. Despite this, we tend to extrapolate the recent past, embedding an expectation of a predictable future. This allows us to sit comfortably within an uncertain world.

When an unexpected event occurs and this predictable future is threatened, we experience stress and discomfort. This discomfort is the natural response to being nudged into uncertainty. State changes brought about by unexpected events should be uncomfortable. They sometimes provide signal to take some positive adaptive action. However most of the time, we use avoidance strategies to reduce the discomfort of uncertainty, such as scrolling social media or tuning out on Netflix , rather than objectively listening for signal.

Making uncertainty productive

In my trading and investing over the years, the correlation between my conviction and profitability is negative. Or said another way, the more certain I am, the less likely I am to make money. This makes sense if you consider that what I know about a particular market is on average no more or less than what everyone else knows (in aggregate). So if I’m certain, then the market is certain, and that certainty is already baked into the price. Paradoxically, as a trader and investor, I need to embrace uncertainty as there is too much risk in certainty.

Today, due to technology, we are confronted with uncertainty multiple times a day. Ironically, where we find respite in social media, we also find the source of our discomfort.

Next time you feel the pangs of uncertainty and you find yourself reaching for your phone, pause for a moment. Leave your phone where it is and walk outside or into another room and sit quietly for a minute. Close your eyes and breathe deeply and sit with the discomfort of uncertainty. Dive into it and accept it. Listen. There may well be something for you to do. Most likely, there is nothing to do, but you have momentarily shifted your perspective around uncertainty. Try this a few times over a week and notice if you see the world differently.

As a trader and investor, if I don’t do this exercise regularly, I transact too frequently which invariably costs me money. As a heuristic, it’s the time between buying and selling where I make all my money. And it’s during this time where I feel the most uncertain.

Photo by Airam  Vargas: