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The Certainty of Uncertainty & Probabilities

The Certainty of Uncertainty & Probabilities

| March 18, 2022

Many of our clients express discomfort when things are uncertain. This is especially true when experiencing “heightened uncertainty,” such as with the current Eastern European conflict.

However, uncertainty is not just a fact of economic and investment markets, it is a fact of life. Our future, by definition, is uncertain. There are times when the future is perceived as less uncertain (the sun will rise tomorrow), but there are seldom, if ever, guarantees of future outcomes. In other words, life happens in probabilities. Learning to consider probabilities into our decision-making process will help us become more comfortable living with uncertainty.

Perhaps the greatest challenge to thinking in probabilities is that it is just not natural. While our brains are filled with gray matter, they hate gray areas. They want to think in terms of certainty and will often convert a probabilistic scenario to either “will happen” or “will not happen.” An 85% chance of rain? The brain defaults to, “it’s certain to rain.”

When it comes to investing, we often hear terms such as “all in” or “all out”, as if investing is just a switch. This type of binary decision-making is natural, easy, and reinforced by the media. But it may lead to costly investment decisions.   

Because we can’t divine the future, the correctness of an investment decision should be based on your financial plan and strategy.  A good practice is to stop guessing what the market will do in the future. It can't be known.

Contact us if you’d like to talk more about the idea of uncertainty and probabilities. or