08/25/2026
What the Salem Witch Trials Can Teach Us About Investing......
I remember reading about this in high school, so I am going to draw on a 1927 essay by H.P. Lovecraft, the man whose name is now synonymous with horror, who wrote that "the oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown."
This truth is perfectly embodied in an event from American history that feels truly Lovecraftian: the Salem Witch Trials. (I also remember talking about this in school)
Uncertainty can push us to seek certainty at any cost, even if the resulting actions are wildly misguided. Consider the settlers of Salem in the late 17th century. They were a tight-knit Puritan community facing incredibly hard living conditions, constant threats from Native American tribes, and ongoing conflicts with neighboring towns. They valued moral purity to a fault, and their strict social hierarchy bred suspicion of anyone deviating from the norm.
When unexplained illnesses and peculiar behaviors began breaking out, the community couldn't handle the mystery. Those accused of witchcraft were swiftly put on trial based on hearsay, sketchy legal procedures, and even "spectral evidence" based on witnesses' dreams. It was virtually impossible to prove innocence. In the desperate search for certainty, 20 individuals were executed. The hysteria became much like the famous Spiderman meme from social media, with everyone pointing an accusatory finger at everyone else. The madness only subsided when influential members of the town were finally accused, and the colonial government intervened.
The Salem Witch Trials demonstrate that our distaste for uncertainty is so severe that we are compelled to fill the void with anything—no matter how destructive—just to rid ourselves of the feeling of not knowing.
The Heavy Toll of "Not Knowing"
This severe aversion to mystery extends far beyond historical events; it is at the heart of many types of mental distress, including panic attacks and depression. A 2015 study found that uncertainty commonly drives Generalized Anxiety Disorder among those afflicted. Some researchers even argue that the ability to tolerate ambiguity is the absolute baseline for maintaining a healthy mind.
We dislike uncertainty so much that we actually hate it more than bad news itself. Studies of people undergoing a health crisis found their anxiety peaked not when receiving a life-changing diagnosis like cancer, but rather when waiting for the results of a biopsy. A cancer diagnosis is painful, but at least it provides a sense of direction and a roadmap for the next steps. Tom Petty was right: the waiting really is the hardest part.
Since uncertainty is the irritant in everything from a traffic jam to a medical scare, it is no surprise that it dramatically impacts the way we make decisions with our money.
According to a 2011 study in the journal Behavior Therapy, highly anxious individuals are literally willing to pay to reduce the chance of uncertainty. In the study, bettors had the option to accept unfavorable odds and lower monetary payouts in exchange for having to spend less time waiting for their wager's outcome. The result? Those with a higher intolerance for uncertainty chose immediacy, readily accepting the attendant financial loss.
The Flight to Cash
Within financial markets, this exact same psychological quirk is the reason investors flee for the perceived safety of cash during periods of turmoil.
The 2008 Great Financial Crisis is a prime example. According to data from the Investment Company Institute (ICI), implied cash allocations surged from under 25% in late 2006 to nearly 50% around the stock market bottom in early 2009. Once volatility surfaces, a cascading flight to safety often ensues. People prefer the certainty of cash, even if it leads to dire consequences for their long-term financial plans. By the time that cash was gradually redeployed into risky assets, the S&P 500 had already recovered, and those investors missed out entirely.
Navigating the Noise: How an Advisor Helps
Because our natural reaction to uncertainty is to act impulse-first, having an objective partner in your corner is often one of the most valuable investments you can make.
The numbers back this up. According to Vanguard's comprehensive "Advisor's Alpha" research, financial advisors can add about 3% in net returns annually for their clients. Independent studies from Morningstar and Russell Investments echo this, estimating that professional guidance adds between 1.5% and 4% in annual net returns.
Where does this added value come from? It isn't primarily about trying to pick the perfect stock or beat the market. Vanguard found that the single largest driver of an advisor's value—accounting for roughly 1.5% (or 150 basis points) on its own—is behavioral coaching.
When market turbulence hits and emotions run high, a trusted financial advisor serves as a behavioral circuit breaker. An advisor helps you see the blind spots in your plan that anxiety might otherwise conceal, keeping you disciplined during market duress and preventing you from abandoning course when the market gets rocky.
Your Task: Taming the Uncertainty
In many of the conversations we talk about on The ProVest Perspective or client meetings, a recurring theme is how investors can protect themselves from their own worst instincts. Here is how you can practically manage the unknown:
• Control the controllables: Your behavior is within your grasp. Politics, market returns, and natural disasters are not. Make regular contributions to your 401(k) and IRA, keep your investment fees low, diversify across asset classes, and invest in yourself. Hiring a financial advisor is also crucial, as we can guide you through volatile periods and help identify blind spots in your plan.
• Expand your time frame: As financial writer Ben Carlson points out, for a single calendar year, the S&P 500 has historically ranged from down 44% to up 53%. But if you widen out to a ten-year window, average annual returns are confined to down 2% and up 20%. Over 30 years, things get boring (but beautiful), with annualized returns varying modestly from up 8% to up 14%. While a single session is a coin flip, there has never been a negative total return 20-year holding period in data from 1926 through 2022.
• Know what to expect: Volatility, as Morgan Housel describes it, is like a ticket to the ballgame. Since 1946, the S&P 500 has dropped 5% to 10% on 84 different occasions. A standard correction (a loss of 10% to 20%) has happened 29 times. A standard bear market (a 20% to 40% decline) has occurred nine separate times. A severe crash of 40% or more has taken place three times. If you have four decades ahead of you as an investor, you should fully expect to live through at least 40 minor drops, 15 corrections, 5 bear markets, and one or two severe crashes that will feel like the end of the world.
• Take care of yourself: Investing in your mental and emotional well-being is crucial. Practice self-care and stress management. Cultivate a strong support network. Most importantly for your portfolio, avoid checking your account balances more than a few times a year, and stay at arm's length from market news, which is mostly just noise.
Learning to tame the power of uncertainty is central to achieving financial success. Life is inherently uncertain, and acting otherwise cuts us off from the exact kind of risk that allows us to compound our wealth. Just like getting lost in a spellbinding read or being tossed for a loop by a movie's plot twist, market unpredictability shouldn't be feared—it should be welcomed and embraced. I will end this off with a quote from the GOAT (Greatest Of All Time) himself.
