"I Don't Know" May Be The Key To Smarter Investing Decisions

Early in my career, it seemed like every other question I was asked led to the same meek response: "I don't know." Damn, I felt dumb.

But over time, I realized that not knowing wasn't a weakness—it was an opportunity. So, I expanded my response to eight words: ‘I don't know, but I'll figure it out.’

Now, no matter the question, those eight words form the foundation of my entire decision-making process.

The absence of certainty

Everything you know, your entire knowledge base, is rooted in the past and every decision you face is about the future—an unknown and unknowable future. We live in an uncertain world.

Where will the stock market go from here?

Will I be able to retire early?

How will the stock price react to the news?

Will we have a recession soon?

As a result, every decision you make has some level of uncertainty, so the challenge investors take on is how to weigh the alternatives.

In general, successful investors are an extremely confident bunch. Their success, however, doesn't come from knowing the answer but from continually asking questions and wrestling with the unknown.

‘The market hates uncertainty' –not so fast

Every time volatility in the market picks up, or the geopolitical climate acts up, the financial ‘news' outlets start talking about how "the market hates uncertainty." That comment implies there are times when there is certainty about the future, which is obviously a nonstarter.

More accurately, market forecasters hate uncertainty—it makes their prognostication much more difficult. Successful investors, however, thrive on the uncertainty.

The fallacy behind uncertainty is that the market isn't just occasionally subject to bouts of uncertainty, the market 100% runs on it.

For every buyer of a security, a seller is taking the opposite position, and both parties believe they are shrewd. If there was no uncertainty, there would be no one left to take the other side of the trade you want to pursue.

Thinking in ranges

Thinking in ranges is the foundation of probabilistic thinking. Instead of chasing one ‘right' answer, you develop a range of reasonable outcomes, each with its own probability of occurring. A narrow range of likely possibilities will serve you far better than a single, precisely calculated but improbable prediction.

Improbable because with so many variables, and an unknown future, precision is an illusion. This shift in thinking reduces overconfidence and helps you navigate uncertainty more effectively.

You can make informed decisions, well-reasoned assumptions, and educated forecasts, but you still can't know the future.

When you pause to acknowledge that your investment thesis might prove to be wrong, it will nudge you away from aggressive assumptions and shoddy due diligence and push you toward investments where the potential return is proportionate to the level of risk. Have a slice of humble pie; it will help you sleep better.

Confidence and probabilistic thinking

Practice intellectual humility which is the opposite of intellectual arrogance or conceit. In simple terms, having the ability to say, "I'm not sure" or "I don't know" and then exploring ‘why not?' is the great equalizer between overconfidence and indecisiveness.

When evaluating the risks around a decision, it's important to look not only at your confidence in being right but also at the probability and consequences of being wrong. When formulating a decision or a plan, look at the complete frame. This middle ground where confidence and probability cross paths is where informed decisions are made.

In the early days of November 2016, the New York Times predicted that Hillary Clinton had an 85% chance of winning the US presidency. (Most news outlets had similar predictions.) When Donald Trump won, people were quick to point out that the political commentators got it wrong. But the commentators never said Clinton will win. In fact, the Times implicitly said that there was a 15% chance she would lose.

When judging others, it's easier to choose between right and wrong than to analyze the opinion on a probability basis. No need to give it much thought. Right or wrong—that's it. But most of our financial decisions are not so binary.

When you get away from thinking in absolutes, 100% right or 100% wrong, and start thinking in probabilities, you begin to contextualize the decision at hand. As a result, your decision process improves because your decisions are no longer simply about black or white, but about calibrating among all the shades of grey.

There's a fine line between humility and hesitation

A healthy respect for uncertainty shouldn't lead to analysis paralysis—where the fear of being wrong keeps you from making a decision at all. The goal isn't to avoid uncertainty; it's to recognize it, weigh the probabilities, and act with confidence.

Successful investors don't wait for perfect information; they act based on well-reasoned assumptions and adapt as new information emerges.

Having doubts about your choice can be uncomfortable, but being certain is only fooling yourself

Yes, be confident in your decisions, but also recognize that there are no guarantees. Probabilistic thinking will help you cope with the uncertainty and manage the risk.

I came to realize that (1) "I don't know" is simply an acknowledgement that we live in an uncertain world, and (2) "But I'll figure it out" is shorthand for evaluating a range of outcomes in the face of uncertainty, weighing the individual probabilities and making an informed decision.

Sometimes you'll get your expected outcome and sometimes you'll get an education. That's the proverbial win-win.

Stay focused on balancing the probability that your investment thesis will be successful, with the financial and emotional cost of being wrong. Your financial journey will be happier and less stressful.

The next time you face a financial choice (or any decision), ask yourself: what's the probability of different outcomes, and how will I adjust if things don't go as planned?

Mastering uncertainty isn't about having all the answers—it's about knowing how to weigh the possibilities.

As always, invest often and wisely. Thank you for reading.

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The content is for informational purposes only. It is not intended to be nor should it be construed as legal, tax, investment, financial, or other advice. It is merely my own random thoughts.

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