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There is no hedge to cover if event belongs to the category of unknown unknowns.
The chances of it happening is actually higher than what most people think.
We can however, prepare for it. Keeping aside cash for a rainy day.
And also to know when to reduce and exit when fair value is reached, thus reducing the overall portfolio size.
This is what I did for U.S. financials recently. Sold a significant portion of it late last year as it reaches closer to its fair value. It has not reached its fair value yet and is likely to trend up within the foreseeable future and I did not need the money for anything else but I think it had to be done. I have traded away the unknown unknown risks with a bit of upside potential. I think this makes sense at this juncture.
The chances of it happening is actually higher than what most people think.
We can however, prepare for it. Keeping aside cash for a rainy day.
And also to know when to reduce and exit when fair value is reached, thus reducing the overall portfolio size.
This is what I did for U.S. financials recently. Sold a significant portion of it late last year as it reaches closer to its fair value. It has not reached its fair value yet and is likely to trend up within the foreseeable future and I did not need the money for anything else but I think it had to be done. I have traded away the unknown unknown risks with a bit of upside potential. I think this makes sense at this juncture.