The Value of Uncertainty
If you knew the entire plot of a new movie, would you still want to see it?
Probably not - because in an environment where you’re looking to be entertained, uncertainty is thrilling & certainty isn’t as exciting.
What’s most interesting about this dichotomy between certainty & uncertainty is:
When we’re voluntarily subjecting ourselves to an uncertain event, we don’t perceive it as uncertainty, rather, we typically perceive it as surprise, excitement, or drama.
Think – reading a book for the first time, traveling to a new destination, or investing in the stock market.
You’re voluntarily subjecting yourself to uncertainty (& many times even paying for the experience!).
And even though something may be uncertain, your perception of those impressions tend to be viewed more positively or at worst neutral.
It’s only when we involuntarily participate in an uncertain event that we change our perception from excitement, to dismay.
Think – a job loss, health issue, or an economic downturn.
We feel let down.
You’re involuntarily subjecting yourself to uncertainty (& this uncertainty isn’t as well accepted).
Two events can be uncertain, the only difference is how we’re perceiving the event.
& if you’re thinking:
“Oh well, of course the uncertainty of a health issue or job loss isn’t as well accepted as the uncertainty of traveling to a new destination or starting a new relationship.”
I can see where you’re coming from - but I feel you’re missing something:
How much of the uncertain event that you’re choosing to accept less were you fully in control of the outcome?
Do you have full control over your boss letting your job go?
Do you have full control over the health issue that you’re experiencing?
Do you have full control over whether there’s an economic downturn?
I’d venture to say that while you may have some influence over these outcomes, you don’t have full control.
As a result of this lack of full control that you have, I have a question for you…
Can you envision a way where this event that appears unfortunate, troublesome or even tragic at this time may bring about a better outcome than you had originally envisioned?
If so, would it be prudent of you to act as if this unfortunate or troublesome event is directing you towards a new course of action.
Could this slamming door reveal a new door that you should explore?
The stoics look at events that are beyond their control by distinguishing between what they can and cannot influence.
They focus on their own actions, thoughts, and reactions, which are fully within their control, and accept external events outside their control with equanimity.
Accepting external events outside our control is a tough pill to swallow, but once you get it down, you become more calm and less disturbed by events around you.
In Stoicism there’s a concept called Amor Fati, or, love of fate.
It means that we should accept things as they are & not as we wish.
If expectations are the thief of joy then not accepting uncertainty is the thief of inner peace.
When unplanned events turn sideways, we have two options:
Option 1 = Choose to not accept the event and exercise whatever emotion we experience.
Option 2 = Seize an opportunity to exercise good character.
Which option is going to allow us to maintain a good flow in life (or be more welcomed by peers)?
I like to think about this approach as a model to live by.
This model of accepting what is, instead of what I want it to be… doesn't always work (I’m human).
But more often than not, puts external events into context so that I can reason through them without losing my mind.
In the world of investing, uncertainty is the price you pay for higher returns.
Uncertainty meaning, your portfolio could go down in value (gasp).
Uncertainty meaning, your portfolio could also go up in value (yay).
That range of uncertainty you’re willing to accept is commensurate with the long-term return you can reasonably expect to receive.
In short:
Looking at history, you get rewarded with higher realized returns for taking on more uncertainty (risk) in your portfolio.
But just because we expect positive equity returns, doesn’t mean that we will receive them.
We accept what is instead of what we want it to be.
So when markets don’t work in your favor, that’s not a good reason to take risk off the table.
Risk management happens before the risk, not after.
So the only thing you’re doing when you’re taking risk off the table in down markets is hurting your prospects of positive long-term returns
So whether we are voluntarily or involuntarily subjecting ourselves to uncertainty, we might as well value it, because life without uncertainty is like a static, unchallenging existence absent of growth and discovery.