Extreme risks are potential events that are very unlikely to occur (therefore infrequent) but that could have a significant impact on economic growth and asset returns should they happen. Global temperature change, global trade collapse and cyber warfare are the top three extreme risks identified in this paper. The value of this exercise, however, lies outside prediction. To navigate through this complex world, we suggest investors need to be openminded, avoid concentrated risks, be sensitive to early warning signs, constantly adapt and always prepare for the worst.
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