From a Dentist's Chair to a Pilot's Seat: Lessons in Navigating Market Uncertainty

A Lesson from the Dentist's Chair

Recently, I was in a dentist's chair after many unsuccessful visits with no firm answers. Multiple dentists couldn't determine what was wrong with my troublesome tooth. It felt like a peak uncertainty moment, and not the desirable kind. But that was about to change dramatically.

This dentist, a specialist, was different. She sat me down, studied the scans, looked me in the eyes, and asked several pointed questions. Better yet, she immediately identified what was happening. Her competence gave me confidence in a moment of uncertainty.

"We see this every day," she reassured me. Her everyday was my once-in-a-lifetime!

This experience crystallizes how competence reframes uncertainty across all domains, from our health to our financial wealth, and beyond.

The Dual Nature of Uncertainty

Uncertainty is a peculiar concept. I view it in at least two different ways.

One is the positive, desirable uncertainty, where a stock we buy could be a 2X, 5X, 10X, or even 100X investment. We never really know for sure how much potential upside we might enjoy. This uncertainty represents an opportunity.

Don't get me wrong. There are many situations when investments don't play out the way we expected. These belong in the undesirable uncertainty category—when we get what we didn't want. There are still ways to mitigate this uncertainty and move on, but we must see uncertainty from both sides.

Uncertainty by itself is not negative. It depends on the context. Most often, we think of it as something unwelcome because we would rather know exactly what's happening next. But that's rarely the case—in the dentist's office, in life, and in investing.

The Illusion of Certainty

I can't think of a time when we can truthfully say, "The next six months or year are absolutely certain." If anything, moments of perceived certainty remind me that what we think is certain may turn out to be very different from what we expect.

I immediately think of a Florida conference I attended a month before COVID lockdowns. It was a picture-perfect time—low unemployment, high margins, ambitious growth plans, no cloud in sight, except for an early virus outbreak in some distant part of the world.

That still recent memory tells me it's much more beneficial to keep an open mind to a wider range of outcomes, keeping the long-term in mind while having a healthy relationship with short-term changes and swings.

Competence as a Foundation

When I think of competence, I think of knowledge, skills, and experience acquired over long periods of time—seeing the good, the bad, and everything in between, collecting insights to help figure out the future.

As Howard Marks, co-founder of Oaktree Capital Management, elegantly reminded us: "Experience is what you get when you didn't get what you wanted."

When thinking about figuring out the future, it's not really about predicting or eliminating uncertainty. It's about focusing on what you have control over and having a healthy relationship with what you can't control.

Focusing on What We Can Control

There's a whole world of things we don't have control over, including interest rates, market movements, and economic policy. But we do control quite a bit in the investment world:

• We control what we own

• We decide how much we own of it

• We decide how much we are invested in stocks versus cash and cash equivalents

• We might even incorporate gold or other investments that may play a role in portfolio construction

That's where I like to focus my attention, and that's where I've devoted significant time to researching individual stocks and determining how they fit into a portfolio. I see it as many dials that we can turn up and down as needed.

Opportunity in Market Turmoil

Market turmoil creates dislocations. When prices drop and the market overreacts, it doesn't mean that everything is on sale, but it definitely becomes much more interesting for somebody who can buy and patiently wait.

Consider the March 2020 market crash triggered by the pandemic. The S&P 500 dropped over 30% in just one month—yet those who maintained their composure and invested during this period of extreme uncertainty saw their investments recover and significantly appreciate within 18 months.

Historical data shows that market corrections (declines of 10% or more) have occurred on average about once per year since 1900, yet the market has always recovered and reached new highs over time.

There are no guarantees about the returns and the timing of any future downturns and recoveries, but the world seems to find a way to pick itself up, shake it off, and continue.

The journey between market turbulence and recovery is uncomfortable, but learning to tolerate this discomfort is essential for investment success. Just as the specialist dentist saw my once-in-a-lifetime tooth problem as her everyday experience, this is the everyday perspective of seasoned investors. It's actually counterintuitive in many ways; the best investments are usually made when the discomfort peaks, and investment trouble often hides in the most comfortable moments.

Confidence Built on Competence

Confidence is a peculiar concept. During my private pilot training, my instructor would provide thorough feedback while carefully preserving my confidence. He understood that confidence, not blind bravery but earned through competence, is essential when facing uncertainty.

In aviation, uncertainty follows you the moment you leave the ground. Weather changes, wind shifts, and unexpected situations arise constantly. This is why pilots spend over half their training preparing for emergencies—developing the competence that builds genuine confidence.

It's no coincidence that in the last three weeks alone, I've met three lifelong investors who are also pilots. Just as Warren Buffett says, being a businessman makes him a better investor, and being an investor makes him a better businessman, I'd add that being a pilot makes me a better investor.

The memory of the calm, collected voice of air traffic controllers in the midst of chaos continues to serve as a grounding force and inspiration in my investing journey. The stormier the skies, the calmer the voice you hear on the radio. Why? Because that's when we need that kind of reassurance the most.

This parallel between aviation and investing is why I incessantly, but subtly, interrogated many of my early investing mentors about identifying dangers and minimizing losses rather than looking for the rosiest of scenarios. I wanted to develop that same calm and competence in the face of market turbulence.

An ideal investment mindset is one with a healthy dose of caution and endless optimism. Without the former, we won't get far; without the latter, we wouldn't have a reason to be patient and wait.

Investing with Uncertainty in Mind

With every single stock, I start by asking: "What can go wrong?" Few people know that I do my best to talk myself out of an idea first; if I can't, then I'll consider buying it.

When I look at the entire portfolio, I test it: How would it act and react at different times? How would these businesses perform depending on what happens ahead? Will they survive? Can they flourish beyond what they might be facing today? It's the challenge of adversity that has forged many good businesses into great ones, rarely the periods of comfort and ease.

This analysis starts from evaluating the solid balance sheets of companies we own, all the way to having cash on the sidelines in the portfolio, or at times even gold investments that serve as a hedge during panic and as a source of cash when opportunities arise.

Embracing Uncertainty

Uncertainty is part of flying, investing, life, and dental visits. I think all we can do is continue to grow our competence (or seek competence of others) to be ready to respond to all kinds of uncertainties—those that show up today and those that will appear in decades to come.

Last but not least, a world sprinkled with uncertainty is also a world full of opportunity. It's the unknown where the promise of a better future lies. That's where our attention has been these last few weeks, and really, at all times. On one hand, what should we avoid? On the other hand, how do we turn uncertainty into fertile ground that can produce tomorrow's winners?

Disclosure:

Blue Infinitas Capital, LLC is a registered investment adviser. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.