How do you handle uncomfortable situations? Can you bend or do you break? Are you… aware?

Volatility is the expression of uncertainty. Price and volatility are a proxy for uncertainty in outcome and trying to price uncertainty results in volatility.1 That is why price fluctuates. You think ‘x’, I think ‘y’, and someone else thinks ‘z’. If there was no uncertainty, then there would be no volatility – no one truly knows where price will go. Kind of like life, if there were no randomness to it would you really call that ‘living’?

I think a misconception of finance and investing is that when you watch the news or read financial literature, the theme of predictability emanates no matter where you look. It’s warranted though, investing is kind of like ‘Rock, Paper, Scissors’ or ‘Texas Hold’em’, assigning probabilities to certain outcomes and placing capital on a probability you think are poised to do well, or less bad than others. The misconception I believe is the idea that these writers or figureheads on T.V. are really good at predicting what’s going to happen.

You prepare… you don’t predict.

Since markets are unpredictable, you prepare for the possible and the impossible outcomes. Financial markets are complex adaptive systems. More simply, they require the participants to challenge the simple cause and effect assumptions, and instead, see investing as a dynamic process. In order to do that, it helps to approach investing as it does life: with humility.

Preparing for the unknown in a way that matches your risk tolerance as an investor is a form of risk management – which is better than trying to predict an outcome since no investor has a crystal ball. In finance you don’t want to be someone who is reactionary, you want to be someone who can keep their cool and be consistent.

Investing can be uncomfortable, from sudden crashes to euphoric rallies. It’s better to embrace the markets and everything they have to offer. It’s hard, but feeling discomfort allows you to get used to experiencing discomfort. You must not surrender to fear – but only you can prevent that.

In the financial world, you must decide if your fear is your anxiety or if that fear is a credible threat that you need to recognize. If you can answer whether your reaction is rational or irrational, you can be a better decision-maker or in our case an investor. To grow as a person as well as an investor, you must encounter a spectrum of experiences that leads to fear no longer being the decider of your fate.

As advisors, it’s our duty to guide you on the path towards financial freedom. Whether it’s a phone call or a financial plan we can help you accept the uncertainty of life, so you can enjoy the journey.

Kenneth Wolin
Portfolio Administrator

Calvin and Hobbes by Bill Watterson
July 4, 1986

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