What Is Tail Risk and Are You Taking Too Much Of It?

What Is Tail Risk and Are You Taking Too Much Of It?

When should you protect against rare, but extreme events? When should you self-insure? Under what circumstance should you sell tail risk protection to others?

Topics covered include:

  • How tail events differ from tail risk
  • Why volatility is not the best measure of risk for individuals
  • What does it cost to protect against large stock market losses
  • Why younger investors can take more risk due to their human capital
  • How does the profit wheel options strategy work
  • How the catastrophic power outage in Texas exemplifies tail risk
  • Why individuals need to build more reserves because the economic system is too efficient and vulnerable to breakdowns


Thanks to SmartAsset and Babbel for sponsoring the episode. Use code DAVID for Babbel to get three months free.

For more information on this episode click here.

Show Notes

Average Weather in San Antonio Texas, United States—Weather Spark

Update on the CBOE BuyWrite and PutWrite Option Indexes, October 2018—Asset Consulting Group

The Texas Freeze: Why the Power Grid Failed Katherine Blunt and Russell Gold—The Wall Street Journal

His Lights Stayed on During Texas’ Storm. Now He Owes $16,752 by Giulia McDonnell Nieto del Rio, Nicholas Bogel-Burroughs, and Ivan Penn—The New York Times

When More Is Not Better: Overcoming America’s Obsession with Economic Efficiency by Roger L. Martin

Related Episodes

250: Investing Rule One—Avoid Ruin

283: Why You Should Care About Carry Trades

321: How to Analyze Complex Investments

323: The Economy Is Not A Machine

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