When an event such as the coronavirus pandemic hits markets, investor attention is inevitably drawn to the damage that can be wrought by high impact, unpredictable episodes. This is understandable as such occurrences can have disastrous financial consequences. I touched upon managing the risk of ruin in my post on ergodicity[i], and Morgan Housel recently addressed the tail-end consequences of risk in typically eloquent fashion[ii]. Yet whilst it is important for investors to prepare ourselves as best we can for such scenarios; we should not focus solely on the extreme, arresting, outlier happenings. There are investment risks that we face that are small, slow and creeping – often going unnoticed – but compound to result in unnecessarily poor outcomes.
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