Although these two words may be similar to each other, both are different in meanings. Possibilities are occurrences that can happen, whereas probabilities are the likelihood of the occurrences happening. Using a lottery as an example, it is possible to win the top million-dollar prize, but the probability would be very small given the odds of winning it (literally at least a one-in-a-million chance).
Picture generated by Meta AI
The reason that I brought up these two things was from my encounters with other investors over the years, particularly on the issue of risk. While I had met some who totally disregard risks (so-called the “boom or bust” or “all-in and hope for the best” investors and traders), there were many others who did consider the different aspects of risks in their investments, to whom I give my praises to. Among the latter group, however, were some individuals who treated all possibilities with equal concerns; in other words, all potential risk happenings were given the same probable treatment by the person(s).
This is akin to an investor viewing the possibility of a company’s share price going down to zero and that of a brokerage firm absconding with his/her securities with the same probability lens. Hence, a typical interaction with this group would be peppered with many “what ifs”, like “if I buy overseas securities, what if the custodian ran away with my money?” or “what if A invaded B, resulting in the share price of the company located in B going down to zero?”, and so on.
For investors with this line of thought, a little bit of self-critique is necessary to slightly wean off from the equal-probability bias. After acknowledging a risk possibility, the first question to ask oneself would be how often it happened. If it was many times, assign a higher probability to it; if not, treat it as an event that one may not see again in his/her lifetime, and then go on and assess the next risk happening. After going through the possible risks, a probability scale of sorts is formed. Though in strict sense, probabilities are quantifiable and calculations are required to give them a number (e.g. percentage or odds), but having a simple probability scale should suffice for one to have a clear picture.
In an ironic twist that even myself adhere to, it is good to have a contingency plan for even the lowest probability risk event, and most are surprisingly easy to implement. Afraid of a custodian brokerage running away? Open an account on another one (what are the chances of two custodian brokerages going rogue at the same time? Very remote). Scared of a company’s share price going to zilch? Diversify one’s holdings. Most of these can be mitigated, but there are several events where one (or almost everyone) cannot prevent, like a total global market collapse, or an asteroid 10 kilometres in size hurtling towards Earth at 60,000 kilometres per hour. For this, should it really happens, it has been nice knowing everyone.
