Tail risks: when to hedge them and when to bear them
23 MAR, 2026
Uncertainty has become a defining feature of today’s financial markets. From unexpected global events to shifting economic conditions, investors are constantly exposed to risks that are difficult, if not impossible, to predict. In this environment, success depends less on forecasting the future and more on maintaining discipline, patience, and effective risk management.
In the following article, Rayeiris Maduro, eToro Pro Investor, shares a practical perspective on how to navigate volatile markets, focusing not on predicting black swan events, but on preparing for them through sound strategy and long-term thinking.
Investing in uncertain times: Discipline, Patience and risk management
So-called black swans, or tail risks, are unpredictable events that, in the stock market, are feared due to the strong impact they can have on our portfolios.
A clear example of these tail risks was the COVID-19 pandemic, an unforeseeable event whose scope and duration no one could determine with certainty. In 2020, between February 14 and March 20, the S&P 500 fell by nearly 32%.
Today, considering geopolitical tensions and the high valuations of U.S. markets, with the S&P 500 trading at a P/E of 25–27x and leading tech companies around 30x, the volatility the market has experienced does not seem excessive. In response, some investors are returning to safe-haven assets such as gold, which has historically preserved value better during periods of low confidence in the system.
That said, trying to predict when these events will occur is like trying to predict when it will rain in London: you know it will happen, but not exactly when. No one could have foreseen that international flights would be canceled during the pandemic and that airlines would collapse, so selling Ryanair shares before their 45% drop would have been impossible.
However, not trying to predict the future does not mean we cannot protect our portfolios against the possibility of such events. Time horizon changes everything: in the long term, markets have tended to recover, but with a 2–5 year horizon, other assets such as government bonds or fixed-interest deposits may provide a more prudent defense.
In my case, my risk management strategy is based on what is known as a margin of safety. In other words, the price I pay for a stock must be below its intrinsic value (the company’s real value, not its market price), which protects you from adverse events such as human error. Risk still exists, but it is mitigated.
Another approach is to avoid companies with high levels of debt, as these have historically been the most affected during systemic crises. Finally, maintaining patience and discipline is key, as these moments test our strategy. The idea is never to sell in panic what you bought with conviction.
