Inherent Uncertainty

My darling bride and I are walking for an hour a day during Lent. As it turns out, that commitment became much easier to uphold than I had expected. On one of those recent walks, we happened by a local house of worship, the site of the Poway synagogue shooting almost a year ago, about half-a-mile from our house.

We stopped to look at the small memorial there, a grim reminder, as if COVID-19 weren’t enough of one, that the rain falls on the just and unjust, as Jesus said. Usually we think that means life happens, bringing everyone burdens and blessings. Today, however, everyone is getting wet, even if some are much wetter than others.

It is also a reminder that bad, even dreadful outcomes needn’t be earned: “Life is on the wire. The rest is just waiting.”

Surprising things happen all the time. As Mississippi State football coach Mike Leach said about upsets in the college game, “Everybody’s all surprised every time this stuff happens. It surprises me everybody gets surprised, because it happens every year like this that there are surprises. The most surprising thing would be if there weren’t any surprises. So therefore, in the final analysis, none of it’s really that surprising.”

We think and live as if we are essentially in control of our lives. That’s less true than we care to concede. That’s why people in our business are required to emphasize that past performance is not indicative of future results.

Past isn’t prologue.

We are self-serving creatures to the core, and self-serving bias is our ongoing tendency to attribute our successes to skill and our failures to very bad luck. But the stark reality is that luck (and, if you have a spiritual bent, grace) plays an enormous role in our lives – both good and bad – just as luck plays an enormous role in many specific endeavors, from investing to poker to winning a Nobel Prize. If we’re honest, we’ll recognize that many of the best things in our lives required absolutely nothing of us and what we count as our greatest achievements usually required great effort, skill, and even more luck.

In Born to Win, Schooled to Lose, Georgetown University researchers found that being born “affluent” but dim carries a 7 in 10 chance of reaching a high socioeconomic status as an adult, while being born intelligent but “disadvantaged” means just a 3-in-10 shot. Talent is universal; opportunity is not. Bill Gates would not have become the Bill Gates we know had he been born into poverty in Pakistan. As Nick Heil explained, “you never really know how lucky you are until your luck runs out.”

Our industry and skill often matter, of course, and often a great deal. Because our lives are much more random and contingent than we recognize, luck is often intertwined with industry and skill.

Sometimes our luck is good, as when the San Antonio Spurs opened a game by making 14 straight three-point shots. Sometimes our luck is bad, as when the Houston Rockets missed 27 straight three-pointers with a trip to the NBA Finals on the line. Sometimes it’s both at the same time.

There are varying degrees of fault and stupidity throughout the COVID-19 transmission chain. Rudy Gobert of the Utah Jazz mocked COVID-19 procautions

…and then came down with the virus and infected at least one teammate. But, ultimately, COVID-19’s appearance and any singular infection are essentially random consequences, what Christian theologians call “natural evil,” a “simple twist of fate.”

Nobody created or weaponized the coronavirus. It just happened.

Our lives are incessantly messy. We condense and simplify these messy lives into narratives, which flatten us while making our lives seem less contingent and more coherent than they really are.

Whatever our preferred narratives, real life is non-linear and random, often wildly so. Surprising things happen all the time – unexpected, off-brand, and off-message. The world is so big and so complex that there are enough once-in-a-century, huge, bad events that they seem to happen at least once a decade.

Many of these big events are entirely or, at least, essentially out of our control. That’s a problem all the data in the world won’t fix. The global coronavirus pandemic is one such huge, once-in-a-century type, essentially random event. It has not so much altered our lives as stopped them in their tracks – at an utterly random point. We’re barely leaving our homes.

A one combat veteran explained, “You realize there’s no rhyme or reason to why some guy gets hurt and another doesn’t, some guy lives and another doesn’t . . . There are enough gun fights and enough things blowing up and people are going to get hurt. That’s just how it goes.”

As we’re learning – more each day – randomness can have a dark edge, even when we are spared.

Those of us who have been involved in the markets for a long time (or at least a couple months) will recognize that, as Keynes is purported to have said, the markets can remain irrational longer than we can remain solvent. Tom Stoppard, in his play, The Hard Problem, explains why: “In theory, the market is a stream of rational acts by self-interested people; so risk ought to be computable. But every now and then, the market’s behavior becomes irrational, as though it’s gone mad, or fallen in love. It doesn’t compute. It’s only computers compute.”

It doesn’t compute, of course, because markets are made, controlled, and driven by people, who may be self-interested, but who aren’t always or necessarily rationally self-interested. They are merely people, not meat machines. They are yearning, hurting, illogical, and infuriating — driven by the attraction Newton left out and by the devout hope that the better angels of our nature that Lincoln saw are real.

All in all, we’re both more predictable and less logical than we’d like to think. We want binary questions and answers in a world far messier and more complicated than that.

When something unexpected happens and markets go down – as often happens – commentators often remark that “uncertainty” caused that price action. The problem is, such uncertainty never leaves. We only have, sometimes, the illusion of certainty.

During a crisis such as this, it’s much easier than usual to recognize that our lives are inherently uncertain. That means we should try to prepare for uncertainty as best we can. Redundancies (like an emergency fund) matter more than efficiency in crisis.

It also means we should take greater care to consider who and what we can depend on. Lots of us have discovered or rediscovered that our lives, our livelihoods, our wealth, our comforts, and our relationships are more fragile and contingent than we thought. If each of us were truly more aware of the importance of luck to our successes, we’d be humbler and kinder (there is already some evidence of this).

The best means for dealing with inherent uncertainty is simple: humility and kindness. It’s simple, but very hard to execute. You may need some luck (or grace) to do it.


2 thoughts on “Inherent Uncertainty

  1. Bob, Your writing always impresses and inspires. Still following you and recommending as well. Hope you and family and all are doing well and staying safe! I miss our conversations.

    Johnny D

    Sent from Mail for Windows 10

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