Consequences Are Always Unintended

Bloomberg recently penned a great piece on the “Law of Unintended Consequences.” To wit:

“There is only one true law of history, and that is the law of unintended consequences. In the early 1920s, the University of Chicago economist Frank Knight famously drew a distinction between calculable risk and unknowable uncertainty. He overlooked a third domain: Unintendedness — where what happens is not what was supposed to happen.”

While the article focuses mainly on the rise in bond yields, it applies to several current market events. As is always the case, individuals are always looking for why “this time is different.” Not surprisingly, as discussed last week, the consequences of such thinking consistently lead to underperformance. To wit:

“Throughout history, whenever most investors believed the worst about a particular asset class, such has often been the right time to start buying. As we have often discussed, psychological behaviors account for as much as 50% of the reasons investors consistently underperform the markets over the long term.”

investor shortfalls