We take risks in many financial situations, but are we always faced with risks?
Risk before uncertainty
Uncertainty is nothing more than a non-quantifiable state of nature characterized by a lack of information. It is worth noting that the awareness of the impossibility of obtaining the missing information implies several disadvantages for the investor.
Firstly, when confronted with the phenomenon of uncertainty, we are unable to estimate any predictive rates of the occurrence of a given event. In free translation, this means that we have no way of knowing whether situation A or B is more likely.
Thus, inexperienced players may face the problem of uncertainty when assessing the predisposition of a debuting company on the stock market. Data acquisition in such a case often turns out to be so subjective that any estimation of the available possibilities becomes virtually impossible.
Practical example
InPost, which debuted on the Polish stock exchange in 2015, was cited on financial websites as one of the investors’ worst nightmares. The dramatic delisting with a drop of almost 50 percent shut the mouths of many traders.
Who would have expected that the same company would soon enter the Amsterdam market making its presence felt with a significantly good touch?
The answer to the question insinuates that some events are simply beyond the reach of the analytical investor’s eye. Such abstract event scenarios escape the best-constructed forecasts and analyses. Therefore, the line between risk and uncertainty is very fluid.
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