We must decide how to handle uncertainty

There’s something about the human mind that craves order. Patterns make people happy. Deviations can make them less so. Chaos breeds anxiety. Order makes people calm. That concept is a basic aspect of behavioral finance, but can apply to other areas of life, including the recent events in Washington, D.C. The breach at the Capitol Building caused people across the nation to experience distress, fear and panic. You could hear it in the voices of the many who called in to television and radio programs. There’s no denying that viewers and listeners were upset, scared and uncertain. The tragic deaths compounded the anxiety. It seemed as if a mob had taken control of the nation’s capital.

Now consider this: When individuals focus on a calamity, it magnifies the event and perhaps gives it greater weight than it deserves. Reporters descend on a scene, live images appear on TV and you can watch a catastrophe in real time. There’s not much context there, just raw, unfiltered and sometimes jarring images. It can be difficult to step back from the situation, but it’s useful to do exactly that.

If viewed from a distance, it’s easier to consider that in time, the magnitude of the breach may not seem as it does today. Think about it. How will you view the story six months from now, in a year, or even two? Will individuals feel as alarmed as some do today? Probably not, because there may be other events that captivate the nation’s attention, that cause people to shudder, worry and fret. That’s exactly the point, because there will always be chaos, it’s a constant. Chaos interrupts order and order follows chaos. It’s always been that way.

We have a saying at my tiny firm: Uncertainty in life is an absolute. It comes without fail. What may be most important is deciding how you react to it, or, more pointedly, how not to react to it.

When securities markets tumble, some investors have a tendency to react, and, in the course of doing so, make decisions that can hurt them. Bad idea, because markets tend to reward patient individuals and go higher over time. It’s certainly not always easy to remain calm when your portfolio has just lost a third of its value, but think back to last March. Stocks crashed and plenty of people sold, ran and hid. The crash was the chaos. Today, those same markets are in record territory. Will they stay in this lofty space? No, they will decline again, maybe sharply, then likely go higher. The gyrations can be hard to take, but when viewed from a distance, over time and through the years, a pattern emerges. Events viewed in this context are far easier to tolerate than when viewed microscopically, whether they involve stocks, bonds or political turmoil. So take a deep breath, step away from attending to the chaos, do something that you truly enjoy and know that order will eventually prevail.