Harry Browne—an investment advisor, author and erstwhile presidential candidate—encouraged investors to think as broadly as possible about risk when building portfolios. Specifically, Browne highlighted four extreme scenarios:
Hyperinflation, like Germany experienced after the First World War.
Deflation, a phenomenon that induces malaise and economic contraction.
Devastation, such as war, natural disasters and famine.
Confiscation, as Venezuela has experienced, for example.
Picking up on Browne’s idea, author William Bernstein calls these “deep risks” because they’re risks that could result in permanent loss. That’s in contrast to temporary losses, which is what investors usually think of when they think about risk.