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Thinking in Bets: Dealing with Uncertainty

by: Kyle Boucher, Analyst - Consumer Discretionary


Recently I read poker champion, Annie Duke’s, Thinking in Bets and cannot help but think the lessons learned could teach us all a thing or two about how to approach the current stock market environment. Duke explains that every decision we make is like a game of poker – “we’re subject to the forces of skill, luck, and other irrational actors hiding pieces of vital information from us.” In short, we can never be 100% positive or completely uncertain of anything, we just have to figure out how sure we are of something and be able to embrace “I’m not sure.”

Today we are living in an unprecedented environment of uncertainty; COVID-19 fears are sweeping the globe, the global economy is all but grinding to a halt, and an end to all this madness lacks a great deal of visibility. Being an observant person, I have noticed countless individuals claiming, “we’ll be fine!” in response to the current market selloff. An appropriate response to this dialogue may be “I’m not sure.”

We should take this opportunity to be much more thoughtful and think independently of prior market events in years past. We’ve just fallen out of the longest bull market in modern history from an event nobody saw coming. In the words of First Pacific Advisors in their memo “Risk is Where You’re Not Looking” we should “avoid using the rear-view mirror except when we intend to go in reverse. Prefer to look through your windshield, despite it being dusty and cracked.” In this sense, risk is in the information that’s hidden from us – and that we often neglect to think about.

If the virus-induced market sell-off is not quite an immediate buying opportunity, it’s certainly a learning opportunity to observe behavioral finance as it unfolds before us.

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