Morgan Housel wrote a very personal piece that I loved titled ‘The Three Sides of Risk‘. If you can’t read it now quickly, do bookmark it. Everyone should take the time to read and share.
Morgan tells his story as an answer to a question regarding how ‘all his time skiing as a young man taught him about investing’.
I won’t wreck the story….but the investing lesson he learned was there are ‘three 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 grasp. It’s the third that’s hardest to learn, and can often only be learned through experience.
In investing, the average consequences of risk make up most of the daily news headlines. But the tail-end consequences of risk – like pandemics, and depressions – are what make the pages of history books. They’re all that matter. They’re all you should focus on. We spent the last decade debating whether economic risk meant the Federal Reserve set interest rates at 0.25% or 0.5%. Then 36 million people lost their jobs in two months because of a virus. It’s absurd.
Tail-end events are all that matter.
Once you experience it, you’ll never think otherwise.
Much truth. Thanks Morgan.