To help gauge the various factors impacting markets at any given time, we sometimes write two lists on a legal pad. One list focuses on the positives: “Reasons why stocks might go up,” if you will.

The other list highlights specific risks. Think: War in the Middle East, political uncertainty or slowing GDP growth. We generally focus on the macro landscape, but when it comes to the dangers facing investors, “too much conviction” deserves a permanent place on the list.

It’s a great irony that while equity benchmarks deliver relatively predictable results over long periods of time, they are exceptionally unpredictable in the short term. This does not, of course, stop investors or professionals from convincing themselves otherwise in pursuit of better returns.

Consider a few examples from this year:

When 2023 began, the financial forecasters polled for their expert opinions overwhelmingly predicted a challenging year for U.S. equities. Midway through November, the S&P 500 is up 17% year-to-date and on pace to double the market’s historical average annual return.

What happened when Wall Street’s big banks and brokerage houses finally abandoned their 2023 recession calls and published more market-friendly economic outlooks in July? The S&P was negative in three consecutive months and fell 10% from its summer high.

Then earlier this week, the latest CPI report showed slower than expected inflation, leading to a furious stock rally. The Russell 2000 gained nearly 5.5% on Nov. 14 as investors second-guessed whether a “higher for longer” interest rate outlook is as inevitable as the consensus suggested.

There are at least two takeaways here. First, be wary of crowded trades and consensus forecasts. In financial markets, the herd mentality is wrong more often than it is right. Second, even the most well-schooled and well-paid professionals cannot consistently predict short-term market trends.

A little conviction can be empowering. Too much will lead to unnecessary risk. A good investment adviser will focus first on managing risk for clients before any sales pitch about outperformance. As a matter of fact, the minority of active portfolio managers who can boast long-term outperformance have done so specifically because of their skill in managing risk.

Diversification, at its core, represents the opposite of conviction. If any of us knew ahead of time which single sector or stock would outperform, there would be no need to spread investment dollars around.

It’s true that a diversified portfolio is sure to include some assets that underperform. Accepting this reality is an important step on the path toward long-term success. Embracing the uncertainty and oftentimes irrational behavior of the market (and other investors) is equally vital.

Every item on our economic pros and cons list has one thing in common: It’s out of our control. Here’s a few things investors can control:

Building an appropriate asset allocation given your withdrawal needs and risk tolerance

Understanding how your current portfolio compares to target allocations as markets move

Managing risk by limiting concentrated positions

Maximizing tax benefits by contributing to the right account types

Accepting the unpredictable nature of equities

Adjusting your strategy as needs change

If you need help or require updates with any of those, seek out a second opinion.

Even if you’re confident in your approach, remind yourself to be humble when formulating investment opinions. Most of us think about the rewards of being right. Far fewer investors consider what will happen if they’re wrong.

Too much conviction may be your greatest hurdle to success.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.