From an investor’s perspective, one of the primary challenges in dealing with events such as those unfolding in the Middle East is that, in times of stress and uncertainty, we quickly default to our most human instincts. These instincts are almost always at odds with sound investment decision-making. We stop doing the things we know work and get lured back into doing the things we know don’t.

The things we don’t know:

• How the situation in the Middle East will develop.
  
• What the short and long-term geopolitical and economic implications will be.
  
• How actions in the Middle East will interact with a multitude of other relevant dynamics in the months ahead.
  
• How financial markets will respond to any of these developments.
  
• Which issue might be the focus of investor attention next month.

The things we do know:

• Even those with considerable expertise cannot hope to forecast the unfolding consequences of geopolitical events.
  
• Predicting the first, second, and third-order financial market impact is even harder.
  
• Short-term volatility in markets is unlikely to have a predictable impact on long-run outcomes.
  
• High real returns for holding equities over the long term are compensation for bearing short‑term volatility.
  
• At some point in the future, equity markets will decline sharply because of some unforeseeable negative occurrence.
  
• Humans often hugely overweight high-profile and salient risks.
  
• Humans make poor decisions when emotions are heightened.
  
• Diversification is the best protection against an uncertainty.

Managing our behaviour as investors is about subduing some of our most human urges – urges that are useful in many contexts but typically disastrous for long‑term investment decision-making. Yet in conditions of uncertainty and anxiety, the compulsion to take action, to predict the unpredictable, and to focus solely on the immediate future often becomes overwhelming.

When we most need to remember what we know, we tend to forget it.

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My first book has been published. The Intelligent Fund Investor explores the beliefs and behaviours that lead investors astray, and shows how we can make better decisions. You can get a copy here (UK) or here (US).

All opinions are my own, not that of my employer or anybody else. I am often wrong, and my future self will disagree with my present self at some point. Not investment advice.