[fairity]

Makes sense. 99% sounds about right for myself. But, how do I estimate the degree of downswing that I'm 99% confident will never happen in my lifetime? Or, is there a way to buy options to protect against this outcome that would economically make sense? Thanks!

[Moodles]

Yeah it’s hard. There is about 200 years of stock market data so I would look at the biggest crashes to get a sense of what the biggest of them all could be. I guess that’s the German tank problem. It seems very unlikely we’ll get a crash relatively twice as bad as the Great Depression though

[sanderjd]

Why does that seem very unlikely? It seems to me that the right way to think about that is that the likelihood is simply unknowable either way.

[Moodles]

It seems very unlikely since there's 200 years of data to show that was the biggest crash ever. So a crash twice that size is very unlikely. You could do the math to calculate the exact probability given the sample size of stock market years.

[sanderjd]

But ... that 200 years of data has nothing to do with what is going to happen in the future...

[Moodles]

Not nothing.

[sanderjd]

I guess this always devolves into philosophy, but yes, the future is actually unknowable.