Unit 1 · Level 2 · What risk really is
Shaken vs broken
In March 2020, global stocks dropped over 30% in a few weeks, then recovered within months. Terra's LUNA token dropped over 99% in 2022 and never came back. Both felt like 'losing money', but only one was permanent. Volatility is the ride shaking; permanent loss is the ride breaking. Confusing the two is the most expensive mistake in investing.
Free to play. No ads, no token, no account needed to start.
What you get asked
What is volatility, really?
Volatility measures how bumpy the ride is, not where it ends up. A wildly swinging asset can still finish higher; a calm one can still quietly die.
Which of these is a PERMANENT loss, not just volatility?
A diversified fund that's down can recover, but only if you still own it. Selling at the bottom converts a temporary paper loss into a real, permanent one.
Match each term to what it means
The first three can all reverse. Only the last one can't, and it usually comes from concentration, leverage, or panic-selling rather than from markets simply wobbling.
For a diversified portfolio, volatility only becomes a permanent loss when you ___.
The market can hand you a paper loss, but for a broad portfolio the loss only becomes permanent if you sell into the dip. Single stocks are different: they CAN go to zero on their own.
The S&P 500 fell roughly 34% in early 2020, then hit new highs within about six months. What's the lesson?
Broad markets have recovered from every crash so far, though sometimes it took years rather than months. Patience is the price of admission, and nobody guarantees the timetable. 🐜
The rest of this unit
Swings, crashes, and stomachs: telling temporary pain from permanent damage.