Pandemic is a reminder we are merely tap-tapping in the fog
• It is an illusion that the more people know, the more control they will have over what happens
Mark Lilla, a professor of humanities at Columbia University, began an article in The New York Times in May with a quote from Thomas Hobbes: “The best prophet is the best guesser.”
That would seem to be the last word on our capacity to predict the future, says Lilla.
“We can’t. But it is a truth we have never been able to accept. People facing immediate danger want to hear an authoritative voice they can draw assurance from; they want to be told what will occur, how they should prepare, and that all will be well. We are not well designed, it seems, to live in uncertainty.”
Yet that is what we have to do. As economist Richard Zeckhauser says, “You might have a vague awareness of the demons lurking out there. You might even be acutely concerned about them. But you have no real idea how many of them there are or when they might strike. Your back-of-the-envelope estimate might be off by a factor of 100, or by 1,000; there is no good way to know.”
Lilla’s article makes other claims, such as the pandemic has brought home just how inadequate our knowledge is for making wise decisions and anticipating consequences. At some level, people must be thinking that the more they learn about what is predetermined, the more control they will have. This is an illusion.
Human beings want to feel they are on a power walk into the future, when in fact we are always just tapping our canes on the pavement in the fog, he says. A dose of humility would do us good in the present moment. It might also help reconcile us to the radical uncertainty in which we are always living.
Let us stop asking for confident projections no-one is in any position to make — and stop being disappointed when they turn out to be wrong.
Which seems to apply all the more to investing. Yet, how inadequate our knowledge is for making wise decisions is obvious when being wrong is part of the process. As fund manager Peter Lynch pointed out, “If you’re terrific in this business, you’re right six times out of 10.”
Wall Street would have you believe that you need to know everything about everything before you make an investment, says James Montier. “When in fact, what you need to know is relatively limited. It isn’t necessarily better to have more information. Too much information confuses. So what we actually find is that the more information you give investors, the worse their decisions tend to be.”
A problem with expert knowledge when it comes to investing is that you can’t put yourself in the position of the uninformed, and it often becomes counter-productive. Those who refused to invest in start-ups during the dot-com era because they knew for a fact that most start-ups were a complete crock, missed the opportunity to make the money that those who were naive did.
Insiders have an edge on naive punters. So, why aren’t they all super rich? Because, they too, are often undone by the curse of knowing too much.
The illusion that the more we learn about what is predetermined, the more control we have
We tell ourselves we’ve studied the markets and we know what to expect. But, as Michael Lewis points out in his book
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knowing something is going to happen doesn’t always help. Financial markets work in free verse, no matter how much you’ve studied them.
No matter how many times you’ve read Charles MacKay’s
— you remain at risk of being sucked into the passions of the moment. Yet when it comes to “illusions” about what’s predetermined, Wall Street asks you to trust that whatever might happen to your money tomorrow, you’ll be OK in the long run. You’re asked to believe that markets can’t be beaten, so you shouldn’t bother trying.
But even a child understands that the way to outperform in most pursuits is to work harder and be more rigorous, not less. Too many investors entertain a dangerously naive disrespect for that basic effort.
Confident projections no-one is in any position to make
If the coronavirus has taught us anything, it’s that no-one has clear enough vision into the future to foretell the path of the economy and the markets, let alone deftly navigate the many twists and turns. The notion that anyone, even the most seasoned pros, can reliably outsmart the markets is a fantasy.
Yet all decisions call for a view of the future and, as the saying goes, Wall Street is not filled with crooks. It’s filled with people who want to earn a living.
Which brings us to Lilla’s conclusion: “We must accept what we are, in any case, condemned to do in life: tap and step, tap and step, tap and step.”
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IT ISN’T NECESSARILY BETTER TO HAVE MORE INFORMATION. TOO MUCH INFORMATION CONFUSES
WE MUST ACCEPT WHAT WE ARE CONDEMNED TO DO IN LIFE: TAP AND STEP, TAP AND STEP, TAP AND STEP