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Amidst long periods of economic growth accompanied by a bear market, it’s easy to become overconfident, possibly prompting you to treat the market as predictable and measurable. However, during unprecedented events, your perception can quickly shift from measurable "risk" to "uncertainty," which cannot be calculated.

Key takeaways:

📌 Risk refers to situations where outcomes can be predicted with some certainty using probabilities, such as insurance models

📌 Uncertainty occurs when outcomes are unknown and can't be quantified, like during unexpected crises (e.g., 9/11 or a pandemic)

📌 It’s easy to misjudge the equity market as predictable, but this is risky, especially when black swan events occur

📌 Understanding the difference between risk and uncertainty can help you avoid overexposure and minimize potential for financial ruin