Tail-End Consequences

“…there are three distinct sides of risk:

* The odds you will get hit.

* The average consequences of getting hit.

* The tail-end consequences of getting hit.

…tail-end consequences – the low-probability, high-impact events – 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 – like pandemics, and depressions – are what make the pages of history books. They’re all that matter. They’re all you should focus on.”

-Morgan Housel, “The Three Sides of Risk.” The Collaborative Fund. May 19, 2020