What I saw was unforgettable. What I heard was unrepeatable. Many years ago, I was helping a mortician and a police officer pull a car with a dead body in it from the Sacramento River. It appears that the driver had driven her car into the river, probably at the old Ord Bend ferry ramp and, over the course of the next few months, it had drifted a few miles downstream. The low summer water flow eventually exposed the vehicle. Hooking a cable to the car, we used a tractor to pull it out of the river. Once on dry land, the mortician reached into the car and what happened next was so repulsive that I had to turn away. It was at that moment that the cop made one of the most vulgar and dehumanizing jokes I had ever heard. It was my introduction to how many first responders cope with death.

On the Nurse.com website Cathryn Domrose wrote, “Nurses often use humor to deal with death… Sometimes it’s just the way you maintain your sanity.” The same reality applies to police officers and first responders. Mary Roach in Stiff: The Curious Lives of Human Cadavers explains that we all find ways to avoid the reality of death. “It’s the reason we say ‘pork’ and ‘beef’ instead of ‘pig’ and ‘cow.” She goes on to say that medical students in their first anatomy class quickly learn that “Dissection and surgical instruction, like meat-eating, require a carefully maintained set of illusions and denial.”

It appears to me that the propensity to deny the certainty of death is only surpassed by the predisposition to deny the uncertainty of life. In Managing with the Brain in Mind, David Rock writes, “Our brains don’t merely prefer certainty over ambiguity. They crave it…” So, in an effort to reduce this uncertainty, Julie Adams pens in Mindful Leadership for Dummies, that “…your brain seeks information. The problem is that often this information is unavailable until later… [Thus], in a bid to create certainty where none exists, your brain starts to construct stories about what’s happening and what’s likely to happen… It then treats these stories as facts and uses them as the basis for decisions and actions.”

Jason Zweig, the author of Your Money and Your Brain, concurs and cites a study which shows that most investment managers “felt that the most important task in evaluating an investment is to arrange the facts into a compelling story.” More often than not, these stories are based on an “attempt to create meaningful patterns where there are none.” Carl Sagan referred to this delusion as the “characteristic conceit of our species.” While most animals can detect patterns, we are “uniquely obsessive about it,” explains Zweig. “[Our] brains perceive anything that repeats a couple of times as a trend.”

So investors, says Zweig, think a “…manager who beats the market for three years in a row is a… genius.” And “The biggest investors on earth fall just as hard for this ‘three’s a trend’ fallacy.” That’s why pension funds and endowments have for years poured money into hedge funds that were on hot streaks. However, the Economist points out what I have been preaching for years “…hedge-fund performance shares a trait boringly familiar from other forms of investing…past performance is not a guide to future returns.” Of the “…93 funds that finished in the top decile during the crash, only three remained top performers.” It appears what looks like genius is “…little more than a guessing game: one in which, over time, the losses from bad guesses eventually top the gains from good ones.”

Sam Houston’s Last Will and Testament refers to, “…the uncertainty of life and the certainty of death…” These are undeniable truths that the human brain, nevertheless, tries to deny. However, as we have seen, there are times when denial is acceptable and there are times when it isn’t. So, when faced with unforgettable traumas, it’s acceptable for first responders to say unrepeatable things. But when faced with random patterns, it’s not acceptable for investors to see repeatable trends.

Article by Guerdon Ely

Guerdon T. Ely has over 25 years of experience as a financial planner and investment adviser. He is the author of Uncertainty is a Certainty: Fables for Fiduciaries, a book on prudent fiduciary investing. He is the creator and developer of two highly regarded retirement distribution software programs, MRD-Determinator and Pre-Determinator, which have been reviewed in MorningstarAdvisor.Com, Investment Advisor, Accounting Today, and WebCPA. Mr. Ely received a Master of Business Administration degree from California State University, Chico after graduating from the University of California at Santa Barbara with a degree in Economics. He is a Certified Financial Planner™, an Accredited Investment Fiduciary Analyst™, and a Chartered Financial Consultant™.

Comments: no replies

Join in: leave your comment