Even the most disciplined investor is at the mercy of the global environment. You can engage in elaborate planning, build fallback positions, and design detailed asset allocations, yet certain external events will always operate on their own whims and randomness. Some of these events are tethered directly to the financial markets; others originate far outside the system. Understanding these “uncontrollables” is vital. When things go south, having this perspective prevents you from over-introspecting or being too harsh on yourself.
Here are some categories of events that must simply be accepted as the cost of engagement in financial markets.
Pandemics (Black Swan events)
These are the “Unknown-Unknowns” of history, such as the 2020 COVID-19 crisis. By definition, no one anticipates their occurrence, let alone their outcome. A global health crisis can shut down all commerce, ushering in a new world order that disrupts every imaginable business model.
Geopolitical Conflict
Unless you are a government insider, it is nearly impossible to anticipate the outbreak of war or sudden regional instability. These conflicts disrupt the major arteries of global trade, blocking energy supplies, choking trade routes, and creating logistical chaos.
Macro Economic Shift
Inflationary impacts, whether localized or global (such as a spike in crude oil prices) force Central Banks to tweak interest rates. High interest rates are generally unfavorable for equity markets as they increase borrowing costs, make debt instruments more lucrative, and suck liquidity out of the market.
Natural Disaster
The impact of earthquakes or floods is often localized. However, damage to key physical infrastructure can have a massive ripple effect on broader commerce and the economy for a medium-term timeframe.
Currency Volatility
A depreciating domestic currency can vastly alter the strategies of foreign investors. Consider the Indian equity market over the last five years. While the market may grow, the Rupee’s depreciation against the Dollar means the final “constant dollar” return is no longer appealing to Foreign Institutional Investors (FIIs), leading to reluctance.
Technology Shifts
Innovation can make existing business models obsolete overnight. Netflix’s disruption of Blockbuster is the classic example from the past. Today, the AI race is forcing every sector to rethink product offerings and human resourcing. While no one has an accurate picture of the final destination, the shift is already causing massive volatility.
Government Regulatory Shifts
Changes in tax structures, such as STT (Securities Transaction Tax) or Capital Gains tax, can discourage equity flows. Similarly, industry-specific bans can decimate sectors. A prime example is the 2025 ban on betting games in India, which effectively wiped out numerous gaming businesses.
Corporate Governance Frauds
Scandals arising from manipulated accounting or misrepresented business outlooks can make a company appear fundamentally sound until the truth is uncovered. History is littered with instances where investor wealth was permanently wiped out by internal fraud.
Investor Reactions
When the “uncontrollable” events occur, the retail investor’s greatest enemy isn’t the market, rather it’s their own psychological wiring. Humans are evolved to prioritize immediate survival which unfortunately leads to a predictable cycle of self-sabotage.
Here is how retail investors typically react and the specific “Panic Traps” you should avoid at all costs.
Denial – Hoping it’s just a minor correction, and it will eventually come up, without understanding the magnitude of the problem.
Anxiety – Constant checking of portfolio multiple times every day. Over that, consuming 24/7 “doom and gloom” news just adds fuel to the anxiety. One might even resort to aggressive downward averaging a.k.a. “catching the falling knife”. Renowned investor Charlie Munger once said: “The big money is not in the buying and the selling, but in the waiting.”
Capitulation – Where the investor sells everything to protect what’s “left”, to kind of “stop the pain”. Behavioral finance calls it “Loss Aversion” i.e. we feel the pain of a loss twice as intensely as the joy of a gain. And selling feels like “taking control” over the situation. They might even stop their SIPs and build over-inflated cash positions, which would in long run turn out to be disastrous compounding killer.
Planning Against Catastrophic Events
While you cannot prevent these events, you can build a portfolio that is designed to survive, and even sometimes benefit from temporary volatility. These are very well-known tactics, but worth re-iterating.
1. Asset Class Diversification
Diversification is not always about holding more stocks, but holding uncorrelated assets. When equities crash due to a global calamity, assets like Gold, Sovereign Bonds, or even Cash come to rescue.
2. Maintaining Cash Reserves
A catastrophic market event causes notional losses in your portfolio, until you are forced to sell. Keeping 6-9 months of living expenses in an emergency fund ensures you never have to liquidate your portfolio at the bottom of a crash.
3. Hard Stop Losses
This might seem contradictory to (2), but for specific type of events such as corporate governance fraud, or some sweeping technological obsolescence, using stop-losses can protect you from the “sunk cost fallacy”.
At the end, it is about building an “belief and acceptance” system. The goal should not be to predict the next big crisis, but to navigate through the troubled times. If you accept that a 20-25% market correction will happen multiple times in your life, you are far less likely to panic when these uncontrollable inevitably occurs.
