Someone, somewhere is always trying to sell the illusion of certainty. Because at a subconscious, primal level we know that certainty is a rare occurrence, especially that of the positive kind.
The most compelling sales pitches are based on either hope or the illusion of certainty. When a pitch is driven off hope, the pricing strategy is to extract a small sum from many. If it works it is God’s grace, if it doesn’t you lose a few bucks. This is why the slim sauna belts and the get slim soon pills are priced very affordably. When you pinch pennies off thousands of people, they’d rather get on with their lives than sue you in court if things don’t work out.
But when the pitch is driven off the prospect of certainty, the pricing strategy is to charge a large sum to a few discerning customers who have the ability to pay up. This is why a top litigation lawyer charges a bomb, he has a track record of losing very few cases. He sells the prospect of near certainty if he is hired by the client. But if such a lawyer eventually botches up a case, the implications can be big for both the client and the lawyer.
When stock gurus wax eloquent about a business that has delivered year on year for a decade, they are indirectly selling the prospect of certainty. The stock in question is just a means to it. No wonder these few proven stocks always trade at a premium. You can see this at play real time in the Indian stock market, pricey valuation doesn’t just exist but is justified as the norm by a section of investors for these great businesses. The reasons are part psychological, never just logical.
When strategy consultants write case studies about how a business strategy paid off, they are using the same principle. Create the illusion that the success enjoyed by a business was planned for so that it becomes easier to sell the illusion of near certainty. The top $ billing naturally follows if you can pull this pitch off. Even when case studies are written about approaches that did not work, they are cleverly packaged as “what not to do” advice.
The illusion of certainty is something that has been used to manipulate public consciousness for as long as people have existed. Just that the pursuit of certainty and the normalization of expecting certainty can have bad ramifications across domains.
The biggest investing mistakes aren’t made when investors are uncertain, they are made when investors take something for granted but it turns out not to be so. This is why investing based on the expectations baked into stock prices works better than investing based on fundamentals alone.
During the later phases of dating, potential couples are usually very sure about one other. “I’ve dated/known him/her for 3 years and I know most of what it there to be known about him/her”. Turns out that once the honeymoon period is over, the “chemistry” disappears and the ride can start to feel bumpy. Blame it on their illusion of certainty or the fallacy of perfect information, never the individual. They realize that their decision based on imperfect information at best and naïve romantic illusions at worst.
In sports the biggest reversals happen when the team that’s ahead takes things for granted and starts thinking too ahead.
The “Margin of Safety” principle is based on the very concept that one can at best have the illusion of certainty but never certainty in investing. When Graham wrote about this, he was looking at it more from a quantitative angle but it works for the qualitative angle too.
Always make allowance for the possibility that you are wrong, even if the near-term data tells you otherwise. A five-year period might sound long to you but it might just be a fleeting trend in the larger scheme of things.
Anytime someone starts pitching to me based on the possibility of certainty, my bullshit detector starts going off. Especially in a social science like investing. And I am not alone in this thinking.
Even in fixed income investing where the annual payout is fixed, it is not certain. We have credit rating and credit risk evaluation for a reason. To quote a crypto meme, “Few understand this”.
Which is plain wrong. For most people know this, just that they don’t act that way when it matters most.
