The Futile Quest For Certainty
As human beings we crave certainty. We seek it out, and when we think we find it we are reluctant to let go of it. Right now as we begin to emerge from the Covid-19 pandemic we hear clients looking for a more certain future for them and their families.
Unfortunately we can’t provide it. No one can. What we can do is keep them focused on the things they can control and help them make the best decisions they can. One of the unspoken downsides of certainty is that finding it and holding on to it often comes at a significant price, one we think isn’t worth paying.
Sitting Down at the Table
Consider this classic example from a poker hand. One of the things I love about poker is that it boils down complex ideas into simple, actionable steps. You think, you decide, you act.
Suppose I am in a hand against one opponent and I believe that my hand is the best right now, but the other player is on a draw that could beat me if it hits. My job is to bet enough into the pot so that my opponent will not be getting the right price (the “pot odds”) to make a call worthwhile.
If my opponent is drawing to a flush, of the 44 remaining unknown cards 9 of them beat me but 35 do not. The pot is $100. If I bet $100, my opponent is only getting 2-1 on a call ($200 in the pot now against his $100 to call) but the odds are roughly 4-1 against him hitting his draw. Were this situation to be repeated infinitely my opponent would go broke and I would have all his money.
Most poker players know this intellectually, but suffer from what we call a leak. A leak is a defect or deficiency in your poker skills (intellectual or psychological) that cause you to play sub-optimally. A leak is where you set money on fire.
The leak some players suffer from is the psychological need to see the final card. They have a need for certainty.
They need to know if they would have made their draw if they called, even though they know the right decision is to fold. They desperately want to see how the story ends. Instead of being happy with many possible futures where they have more money, they need to know the actual future where four times out of five they end up losers.
Back to Covid-19
I’ve just received my second vaccine shot, which puts me in the same company as 87 million other adults. This number will swell until the planet is effectively immune from this particular virus. Everyone in my circle desperately wants to know what our post-Covid future looks like.
I would rather be able to eat in a restaurant, travel on an airplane, or go to a ballgame or a concert without wearing a mask or worrying that the person standing next to me is going to give me a potentially deadly disease. Shocking, I know.
I don’t think these things are in question at the moment. What we have instead are much more global issues to consider for the post-Covid world.
Where and how are we going to live?
How will we conduct business?
Will work ever return to our pre-Covid assumptions?
Will Covid be the catalyst that finally changes our beliefs about things like government, health care and the environment?
My position is that we need to be OK with not knowing this, because all of these are unknowable until they actually happen. Of course, as a society we are the ones who make these things happen through our daily decision making. We are not passengers on this bus, we are all driving it.
The need for certainty, however, always comes at a cost. The poker player’s need to see the final card and whether he made his draw will inevitably drain his funds to nothing. The unwillingness to take productive risks like investing for the future, building personal skills, improving mental and physical health because we just don’t know what the future will be like is most assuredly just as bad an idea.
All of the above are life leaks. Poker leaks generally only cost money, life leaks extract a far higher cost. Our biggest challenge as advisors is keeping our clients doing the things that they *know they should do* even when it’s hard.
They know they should rebalance their portfolios when money either arrives or departs.
They know they should take advantage of opportunities to defer taxes.
They know they should keep enough cash to meet their foreseeable spending needs, regardless of whether the market is booming or tanking.
They know they should not stockpile more cash than that, regardless of whether the market is booming or tanking.
All of the above will keep your finances and life on track even in an uncertain post-Covid world. We don’t need to know the future in order to prosper in it.
Good news! Your next car is electric and there’s nothing you can do about it.
The Futile Quest For Certainty As human beings we crave certainty. We seek it out,...