Coping with the unpredictability of financial markets

There she sat, perfectly still with a look of concentration on her face – yes cats have facial expressions too!

Quietly, patiently, she waited. What was making that rustling sound in the bushes? Was it a plaything? Was it something she could eat? Or was it merely something to be toyed with for her amusement? With her body on high alert, she poked her nose forward for a closer look, but she had to protect herself too. It was compelling, too compelling to just walk away. She had to be certain, was it friend, foe, food or simple frivolity? At last, we see it, a dinosaur (or, to you and me, a skink). The hapless creature shed its tail but she was too smart for that. She knew where the
real prize lay.

Molly’s commitment to finding out what was in the bushes, and her willingness to sit and wait, got me thinking about the parallels between Molly’s behaviour and human behaviour.

Molly needed to be certain. And so do we. The human brain is wired for survival. Its number one priority is to keep us alive and to do so, it constantly scans for threats. But our brain, in its little black box (our heads), has no direct contact with the outside world. Instead, it must wait for signals from our senses and then make lightning-fast decisions about whether something is a threat to us or not. Uncertainty, by its very nature, is a threat to the brain.

How then, as humans, do we cope with the unpredictability of financial markets, let alone life itself when our brains find uncertainty so difficult? As humans, we are generally better able to cope with bad news than we are with the anticipation of bad news. Why? Because when we know, we can act. A recent study showed that participants who had a 50:50 chance of getting a painful electric shock had higher stress responses than those who knew for certain they’d receive an electrical shock. It’s the fear, the unknown and the anticipation that causes anxiety or stress.

But there are some useful tips that can help:

1. Simply knowing that our brain dislikes uncertainty is a start. When we are uncertain, different parts of our brain are playing tug of war and that uncomfortable feeling we get is perfectly natural. Did you know that excitement and anxiety trigger similar physiological effects? We can wrestle back control by naming and reframing our emotions. That doesn’t change the external world, but it can change the way we view it.
2. Knowing that markets are volatile, uncertain, complex and ambiguous is also important. We work with you for long term benefit. What happens daily shouldn’t derail your long term strategy. In 2002 Steven Bradbury won the 1000m Olympic Skating by sticking to his game plan even as he was almost lapped by his four leading competitors. Like Molly with her skink, Steven’s commitment to his strategy ultimately saw him get his prize.
3. Speaking to your financial adviser. We can’t predict the future, nor can we give you the certainty you crave, but we can draw on our experience. We have experts who watch the markets for a living. That doesn’t mean we have superpowers to pick the super stocks, but it does give us, and you, an edge. And, sometimes, just being able to talk through your concerns can help.

In the financial markets and indeed the world, nothing is fail-safe. But your investment and your trust are as serious to us as that skink was to Molly.

After her successful slaying of the dinosaur, Molly was able to retreat to the comfort of her easy chair for blissful sleep. We hope you can too.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.