Today I want to discuss the curious nature of surprises. Astonishment, shock, alarm, disbelief, wonder, amazement -- pick any synonym you want, we seem to be genuinely surprised by what can only be described as ordinary events. At least, that is how things look when emotions are no longer running high and in the cool light of hindsight.
This tendency to be surprised isn't a very surprising trait among investors, or people in general. Our mission today is to understand why.
Why are investors so often surprised? There are many reasons that help explain unfolding events in ways that are rather curiously described as “unexpected.”
As investors we:
* have an incomplete understanding of the world around us
* assume we know the drivers of complex systems such as markets and economies
* underestimate the potential for significant random events to occur
* believe in numerous myths, false ideas and incorrect “facts”
* misunderstand the degree of complexity that exists
* think we are apart from -- yet understand -- crowd psychology