How do I hedge tail risk?
What are Black Swans?
Where will the next shoe drop?
Whenever there are large movements in the markets these questions arise.
It is akin to calling an insurance agent after a disaster strikes, and asking them for coverage.
Our biases often persuade us that what is today, will be tomorrow. In today’s world we realize that this just is not so.
The right questions to be asking are, what are the disasters that you need to avoid? What are the costs associated with protection against them? How do your needs change over time?
There are many ways to look at risk. There are many ways, both financial and non-financial to avoid/eliminate/reduce risk. Knowing what types of products to use in varying environments, and the costs involved is key. But, only after you understand what your personal tail risks look like.
