As markets react over a British vote to exit the European Union, the word “control” comes to mind. Certainly Brexit was not driven by economics, but by emotions. When humans are confronted by uncertainty, we react by grasping for anything that makes us feel in control. Sometimes this manifests itself in bad habits such as checking a deadbolt twenty times before going to bed, sometimes it resembles violence toward others, and sometimes it shows up as investors hitting sell in their portfolios due to the benign outcome of a referendum. But let us be clear: checking a lock over and over, aggression toward others, and reactionary investment policy do nothing to gain us control and actually end up hurting us (and others around us). The tricky part is, our grasping-for-control rarely leaves fingerprints and therefore always appears driven by other factors; obsessive compulsive conduct seems purely silly, violence is at times provoked, and a selloff can look like such a smart move amidst chaos.
It is this need for feigned control that drives many of our decisions each day. Here, it is not conviction that an economy will fail or a union will collapse that drives our decisions – we know nothing of the such and any supposition therein is at best ridiculous. Instead, it is an inherent need to cover-up our lack of control that makes us react to Brexit and do the (foolish) things we do. To put it simply, we would rather suffer through behavior that manufactures control than prosper in uncertainty.
Never has our emotional grasping for control had such a large and influential stage as financial markets provide. But if markets have taught me anything over my career, they imparted the wisdom that other people’s emotional behavior does not have to become my own. Just because others are crazy does not mean I have to be! And I also eventually figured out an important nuance in the fight to stay calm: Truly knowing why things happen is much more powerful than knowing what things happen. By understanding that people’s crazy behavior has nothing to do with the state of the world or an economy, rather a barometer of an individual or group’s need for the illusion of control – we make it much easier for ourselves to stay composed while others distress. I found that there is such a vast and potent difference between witnessing others’ panic and knowing, accurately, why they panic.
So, to my fellow humans – plagued as we are by our innate behavior – I offer the following two pieces of advice:
1) Just because others are crazy does not mean I have to be! And,
2) Truly knowing why things happen is much more powerful than knowing what things happen.
The markets’ reaction to Brexit is a perfect analogy for our deep desire to control at all costs. Personally, I would rather prosper in uncertainty.