Unknown Outcomes

Life is inherently uncertain and there aren’t many “free lunches” in this world. Predicting the future is a fool’s errand, however we must take a risk on the future otherwise progress ceases to exist.

Men and women of vitality have always been prepared to bet their futures, even their lives, on ventures of unknown outcome. If they had all looked before they leaped, we would still be crouched in caves sketching animal pictures on the wall. – John Gardner

Business and investing are risky endeavours but the reward and incentives are enough for someone to take on the uncertainty. When someone decides to start a business that person is taking on risk that someone else might not be willing to take. Our capitalist structure rewards risk by using a profit motive. A great business can earn a profit while providing value to the customer in some way, shape or form.

When a business is doing well in its field this incentivises a competing business to come in and try to take market share from the established business. Jeff Bezos once said, “your margin is my opportunity.” Businesses competing makes the products and services better which propels society forward over time. This benefits people in ways that aren’t necessarily intuitive.

Using the stock market to invest is a wonderful way to take on risk with less downside and more upside over time than starting a business. I think this is because investing in the stock market doesn’t require as much human capital like starting a business does.

The stock market is used by companies to raise capital and used by investors to exchange ownership in these companies. Many people are fearful of the stock market and its shortcomings but will happily gamble at the casino or play the pokies or bet on sporting events– all of these outcomes have a negative expected value. The math is working against you.

The stock market can be volatile in the short run and one of the causes of this is human behaviour. We tend to act emotionally at times. Being able to manage our emotions can help an investor weather the short-term volatility in prices and stay the course.

As individual investors one of our most important skills is to think long term and to leverage time to our advantage. This skill is where we can turn the odds in our favour and increase the chances of reaching our financial goals.

We purchase shares regularly and put our capital at risk, but the risk is diminished because of our ability to think in decades not days. If only all investors could think long term I believe their results would improve dramatically.

Ralph Emerson said, ”The years teach much which the days will never know.”

Thank you for reading.

J.H.Repetto