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The Three Sides of Risk

The tail-end consequences

The tail-end consequences of an action or event (those with low-probability, high-impact) are all that matter.

In investing, the average consequences of risk make up most of the daily news headlines. But the tail-end consequences of risk (for example, pandemics and depressions) are what make the pages of history books.

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The Three Sides of Risk

The Three Sides of Risk

https://www.collaborativefund.com/blog/the-three-sides-of-risk/

collaborativefund.com

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Key Ideas

Three different sides of risk

  • The odds you will get hit.
  • The average consequences of getting hit.
  • The tail-end consequences of getting hit.

The first two are easy to understand. It’s the third that’s hardest to learn, and can often only be learned through experience.

The tail-end consequences

The tail-end consequences of an action or event (those with low-probability, high-impact) are all that matter.

In investing, the average consequences of risk make up most of the daily news headlines. But the tail-end consequences of risk (for example, pandemics and depressions) are what make the pages of history books.

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