What if . . . something unprecedented affects your investments?

Sometimes I wonder whether my way of thinking helps or hurts me when it comes to income investing and investing in general.

I think that if I were to try to get a "real" job in the financial world, I'd be at a disadvantage. That's because the general financial community accepts historical returns and situations, but I'm a long-time science fiction reader (and very minor writer) and therefore am used to asking, "But what if . . . ?"

For example, to the conventional, statistically savvy financial mind, the sun is not going to blow up tonight simply because it's been existence over 4 billion years and hasn't yet blown up. To most people, the sun going nova is simply an incomprehensible event.

But as a science fiction reader I'm used to thinking about suns going nova. If a particular star is about to go nova, it's going to go nova even though it's been in existence for billions of years, and therefore provided billions of mornings to any planets in its solar system.

My only comfort is my understanding -- hopefully not wrong or out of date -- that our particular G class, yellow sun is of a type that doesn't go nova. I put more faith in the findings of astronomers who've studied many stars that have gone nova or not than I do in the narrow, statistical viewpoint of, it hasn't happened in the past 4 billion years so it's not going to happen.

Sorry, but if there's something inside the sun that's about to make it go nova, all the statistics in the world won't stop it.

But, as I mentioned, I'm sure that pension fund managers charged with obtaining optimal performance at a given degree of risk are not interested in statistically highly improbable "long tail" events that may make their forecasts based on historical results irrelevant.

Yet the world is always changing, and sometimes the statistically improbable happens. In 1998 the Long Term Capital Asset "hedge" (I use quotes because they did not hedge their trades, but rather leveraged them 100 to 1 or more) fund placed a lot of money -- huge amounts of it borrowed -- on a derivative contract based on the historical relationship between United States and Danish government bonds.

In the summer of the 1998, a "what if" occurred that they didn't think of, despite their Nobel prizes in Economics and PhDs and Masters . . . The sun didn't go nova, but the Russian stock market did "melt down" -- losing about 90% of its value. This, following the Asian currency crisis of 1997, frightened people in developing countries around the world so much that the shipped all the cash they could to the United States and bought United States Treasury bonds, driving their price far past its historical relationship with Danish government bonds.

Net result -- Long Term Capital Asset not only lost all its investors' money and went bankrupt, the New York Federal Reserve Bank had to intervene to prevent a massive breakdown of the United States (and, probably, world) financial systems.

So . . . what if millions of retiring baby boomers start selling their non-dividend paying, "growth" stocks?

What if . . . ?
What if . . . ?