The difference between risk and uncertainty

Here is an example that illustrates our view of the difference between risk and uncertainty.

Suppose an individual was in front of a table. On that table is a glass filled with water.

If Wall Street was involved in analying the process of the individual drinking the water they would focus on whether the individual was going to use their right or left hand to pick up the glass, whether they would drink it on one go or in several sips, what temperature the water is, etc.

However, we believe these things are uncertain. With the information we have it is hard to acertain whether the inddividual in question is left or right handed.

We can look at a large sample of data and from that determine a probabilty the individual is left or right handed. However, for us, uncertainty does not frighten us. It always exists.

In this example, what is important to us is that the individual has arms. If he does, we can be pretty certain he will drink the water when the individual is thirsty. We don´t pretend to know when that will be. This is how we invest. If we can see the principal scenario clearly, we go ahead. We do not pretend we can predict with precision every small detail, a practice that leads Wall Street to focus on the short term. We focus on the main points and hence focus on what is likely to happen over many years.