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The Illusion of Control

Life is one big series of surprises. As humans, we tend to organize these surprises in the ‘once in a while’ category. We think of the moments when we were surprised, when things didn’t turn out like we thought they would or when that big event happened that changed our lives forever.

The reality of this is that from the moment we wake up until the time we close our eyes, we have just lived through layers and layers of surprises, close calls and events that we blinded ourselves from. Literally hundreds of them. To put this into an analogy, think of being inside of a perfectly crafted hurricane, in the eye of the storm, rolling along wherever it goes. We ride the fringe between chaos and calm. Get off track and our day goes from a sunny Sunday afternoon at the pool, to a stomach-dropping ride from hell. Keeping within the eye is not always in your control. There is a reason we call it risk management and not prevention.

Our brains have a special way of processing this. We are able to compartmentalize the chaos that could ensue and allow us to focus on things that we can control. Simply put, we have to control our reaction to what we cannot control. But there are some people that believe their actions and knowledge give them the special power to out-navigate the rest. This is the human bias we call ‘Illusion of Control.’ As some call it - 'Man's Greatest Flaw.'

Illusion of Control is a bias that describes the tendency to believe that one can control, or at least influence, outcomes when in fact, they cannot. We see this in many forms. Stock traders, doctors, investors and health gurus are a few that are top of mind. Illusion of Control is probably best described by Wall Street and personal investors, alike. The stock market encompasses thousands of companies. The bond market even more. Every economist, market analyst, trader, adviser and individual investor likes to believe that they have some control over the investments that they manage. They use ratios, formulas, speculation, news and their guts to make decisions. Most realize that these are just educated guesses. Most of their clients know this, as well. They pay them to have the education and knowledge to do so. But then there will always be those that think they can predict the market… these are the individuals with Illusion of Control.

Let’s face it, there is no better satisfaction than when we hit the nail on the head with a prediction. The time we buy a stock on Wednesday and it shoots up 5% the next day. If Wall Street gave out trophies, plenty of folks would build a trophy room just to flex their ego. It’s human nature. But, like any meteorologist will tell you, nobody has control. The layers of variables are just too complex… in financial markets and even more so in life. Thousands of companies, millions of consumers, pandemics and disasters are just a few things that can take a well-crafted plan straight back to the drawing board. Couple that with a global economy, envy, greed, wants and needs. Life begins to look like a Russian Nesting Doll. If you ever meet an advisor who tells you they can guarantee better than the market investment returns by actively managing your assets, please move on. Guarantee is a word that should be used very sparingly in our world.

The same goes for real estate investors who always believe they have their finger on the market. Sure, there are less moving parts. But, the control over local politics, disasters, massive repairs, the local economy, rent control laws, interest rates, bad tenants, bad business partners, etc. is non-existent. Look at Flint, Michigan. At one time it was a hotbed for steady real estate investment. Then, news hit that local government had been polluting the local water supply with lead. The market dropped like a lead balloon (pun intended). Control? None.

Many stock traders and investors think they can control their portfolios. Believing that they know the next move and what others are thinking. Doctors are a bit more grounded, but a select few have been known to have a God complex, showing frustration at any conflicting argument to their own, even when data and logic are there. Health gurus can be a special breed. We all want to be healthy, live a long life and beat the averages. Don’t get me wrong, we are learning more than ever about nutrition, mental health, longevity, etc. I am all-in and practice what I can. But knowing that I can guide (but not guarantee) my health allows me to enjoy it a bit more. Who knows, maybe that by-product of enjoyment and peace will actually make me healthier? It worked for Betty White. It is a never-ending uncertainty circle.

Then, we have what I like to call the antithesis of the Illusion of Control… the weatherman/meteorologist. This individual’s entire career is based on probability, not certainty. They predict, not guarantee, that certain weather may occur. That is why their predictions are based on percentage of probability. When we hear ‘there is a 100% chance,’ we can be pretty certain it is going to happen. Still, it is a gutsy move.

A lot of these surprises and unexpected events can come in the form of what we like to call ‘Black Swan’ events. Once in a lifetime events that change the world, change lives, change minds. COVID, The Great Financial Crisis and 9/11 all come to mind. These have affected us all, but we each have our own personal Black Swan events that happen on a smaller, personal scale. The ones that only we know about and change everything.

I like to use our daily routines to demonstrate this. Think about a normal day during your week. Most of us get out of bed, make coffee, get in our cars, drive to work, ride the elevator, spend eight hours in the office, drive home, cook dinner, rinse, repeat. We have control over it all. Kind of. Think of that commute, the one that you have done hundreds of times. You get into a 3,000lb machine full of flammable materials, drive it at 70 MPH passing hundreds of other 3,000lb machines, while missing deadly collisions measured by only a few feet. There is no track… you are putting your faith in a bunch of other drivers you don’t know, hoping that they don’t make a mistake. These same drivers texting, talking on the phone, applying makeup in the mirror, daily road-raging and some fresh off a fight with their spouse or kids and paying little attention to the act of threading a needle we call the highway. A lapse in focus for a couple seconds can wreak havoc. So, when we think we have control of our day, do we? Getting through our day requires our mind to shut this uncertainty off. If not, we’d never leave the house.

Heck, even when out of the car, getting to the office continues the uncertainty. With that in mind, you may want to take the elevator, as stairways alone cause 12,000 deaths per year in the US.

Annual Stairway Deaths (2015) Source: WHO Mortality DB

Life will always be considered fragile. We do our best by understanding our actions, what can get us into trouble and what can shelter us from harm. No matter how hard we try, this cycle is a part of life. Pretending we have control can be detrimental to our wallets and to our spirits. And in business, detrimental to the trust others have in us.

In the world of Wealth Management, I can guarantee you will have good years and bad years. Probability says you will likely make way more than you will lose. The planning you do (and don't do) is actually in your control. How the market performs is not.

When we let go of trying to control everything and begin focusing on the things we actually can control, life can become much more rewarding and fruitful.


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