Embracing (at least facing) uncertainty
By Joel Dresang
My high school had a top-notch debate program, but I chose to be in forensics.
Rather than engage in the lively repartee of verbal fencing, I preferred to write, memorize and recite speeches. I wanted to control what I would say, not have to extemporaneously respond to other kids’ arguments. I was more comfortable with certainty.
I’m not alone. I’m always hearing how investors don’t like uncertainty, how ambiguity, unpredictability and the unexpected can scare skittish stockholders into selling or buying when they should be staying put.
For instance, a market-related uncertainty index followed by the Federal Reserve Bank of St. Louis leapt to an all-time high last spring, at which point, stocks suffered a record decline.
“Our natural discomfort with uncertainty is a legacy of our survival instincts — we are more comfortable with what is familiar and certain than the unknown, which could be dangerous,” Arabella Simpkin wrote last April in bmj.com, formerly the British Medical Journal.
“Embracing uncertainty is counter to our evolutionary instincts.”
And yet, embracing uncertainty can be beneficial, according to a growing array of research. Simpkin, who teaches at Harvard University Medical School, has studied how an aversion to uncertainty hampers decision-making by doctors and fuels the anxiety that leads to their professional burnout.
Daeyeol Lee, a professor of neuroscience, psychiatry and psychology at Yale University, has found that brains work harder when uncertainty monkeys with their autopilot.
“Uncertainty is a gadfly of the mind, jolting us from complacency — if we are willing to take up its invitation,” author and journalist Maggie Jackson wrote recently in the Boston Globe. She notes a “new wave of research” on the upsides of uncertainty, citing studies from various disciplines suggesting that we should see uncertainty as a challenge to handle rather than a threat to avoid.
Nathan Furr, who spent five years studying innovators, entrepreneurs, CEOs, Nobel laureates, gamblers, paramedics and surfers, says people can learn to deal with uncertainty.
“Those who develop this ‘uncertainty capability’ are more creative, more successful, and better able to turn uncertainty into possibility,” Furr wrote in the Harvard Business Review.
Several years ago, I took an improv class at Milwaukee-based ComedySportz. Improv is even less scripted than high school debate. It’s real-time make-it-up-as-you-go live theater based on random suggestions, usually only a word or two.
As I completed one workshop and then another and then joined a ComedySportz rec league, I found improv both exhilarating and excruciating. It challenged me to overcome my hesitations and contend with uncertainty.
In the last year, the unknown has loomed as never before on many dimensions. Scholars who study uncertainty have had a chance to share their findings to suggest how others can try to withstand the vagaries of the pandemic, racial unrest, the elections, climate change and so on. Some of Simpkin’s advice — and some of what I have been taught in improv — might be useful for investors. (The quotes are from Simpkin.)
“To some degree, what helps propagate uncertainty is lack of clarity and vagueness in strategy.”
Or, as Art Rothschild likes to say, “If you don’t have a plan, you don’t have a clue.” Knowing your investment plan can prepare you for market shocks such as the sell-off in March 2020 and the “flash crash” of May 2010. With a diversified portfolio custom-balanced for long-term growth and short-term needs, investors can better tolerate uncertainty and the volatility it causes. A plan can help put uncertainty in perspective.
In improv, I was taught rules that served as strategies for clarifying the uncertainty I faced. A cardinal rule is to respond with a “yes-and” to whatever anyone else on stage says or does. So, if someone establishes that you are a long-lost sweetheart, you could take them in your arms and declare your everlasting love. In that way, you affirm and advance the story that your scene partner has suggested.
A note on coronavirus volatility, by Kyle Tetting
Retirement 101: Having a plan, a Money Talk Video with Tom Pappenfus
“Pay attention to your reaction to uncertainty — we have control over how we respond.”
Critically, Simpkin says, acknowledge that uncertainty is a certainty. Know that you can’t control it, but it doesn’t have to control you.
Investors have natural tendencies, impulses that cause them to react to volatility in ways that hurt their investment portfolios, Kyle Tetting explains.
“The more something bounces around, the more peaks and valleys there are going to be, the more opportunities an investor has to make the wrong decision about what to do,” Kyle said in a Money Talk Video.
By recognizing how they’re likely to behave, investors can counter their inclinations, Kyle says. They can remind themselves of their investment plans and consider possible consequences before reacting to the unexpected.
Paying attention is essential in improv. Going in, I thought the key was being quick on your feet and coming up with showstopping one-liners. I learned that listening is key. Getting out of your own head and taking your cues from your scene partners helps you manage uncertainty by making it a team effort.
Why investments outperform their investors, a Money Talk Video with Kyle Tetting
Checklist for circumstances beyond control, by Joel Dresang
“Talking openly about uncertainty helps normalize the experience of uncertainty for others.”
Acknowledging uncertainty means conceding that you don’t know everything, which is hard for some people to do. But it’s true, and it’s important to say out loud so others can say it too. Sharing such conversations with clients is part of what Art refers to as practicing humility.
“What investing with humility does is it gives the investor discipline,” Art says. “They prepare better for what could happen — instead of assuming that something’s going to happen and investing accordingly. So, it really does help them be more patient and let investment themes evolve as the markets change.”
Improv relies on the ensemble, which requires teamwork and generosity. In the rec league, veteran ComedySportz officials refereed our shows and gave us notes afterward on what worked and what we could have done differently. We faced uncertainty together, and even the most experienced among us continued to learn. One of the best feelings just before the lights went up was to have a fellow improviser put a hand on your shoulder and say, “I’ve got your back.”
The importance of humility in investing, a Money Talk Video with Art Rothschild
“Celebrate uncertainty — it drives curiosity, a fundamental motivator for learning and expanding frontiers.”
When uncertainty compels investors to want to do something with their portfolios, Marc Amateis suggests taking the opportunity to review asset allocations. It allows investors to put current market conditions in the context of their personal plans and investment balance.
“The act of rebalancing can allow you to do something constructive. Something that you should be doing on an annual basis but not something that’s going to be destructive to your portfolio,” Marc said in a Money Talk Video. “You want to keep emotion out of investing. You want to invest based on facts, based on fundamentals, based on valuations, not on how you’re feeling from day to day.”
I rarely do improv anymore. It feels like a muscle I had been learning to use, but now I’m out of shape. It’s as if I’m afraid of straining something. To be honest, I’m still not comfortable with the uncertainty involved.
But I guess the investment lesson is that I know that I can face the uncertainty of unscripted theater. I know it won’t kill me. It won’t scare me into doing something I might regret. And I know, if I approach it right, I might actually benefit from it.
5 ways rebalancing calms anxious investors, a Money Talk Video with Marc Amateis
When Should I …rebalance my portfolio?, with links to other resources
Joel Dresang is vice president-communications at Landaas & Company.
(initially posted February 26, 2021)
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