Force majeure, a clause in legal contracts that exempts parties from liability due to unforeseeable and unavoidable catastrophes, can also apply to investing. Force majeure specifically is written into contracts to protect parties from the unexpected and from events that cannot be predicted — for example, if you’re building a house and an earthquake hits and destroys the foundation, setting back your timeline, the force majeure clause would protect your builder because the earthquake was beyond their control.

Although it may seem unrelated, being aware of sudden market shifts is crucial for investors. Trying to predict every possible outcome is impractical due to the role of uncertainty in investing. Instead, investors analyze large amounts of data to make long-term decisions. However, unforeseeable events and rapidly changing information can pose challenges that require quick adjustments. Here are two recent examples that illustrate this point.

COVID-19 as an Example of Force Majeure


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