Most stock analysis focuses on one main question, is this a good investment?
That usually means growth, earnings, market size or future potential. All important things. But there is another question that often gets ignored 'what happens if things go really wrong?'
A lot of models assume the future will look roughly like the past. Maybe a bit better or maybe a bit worse. But markets do not always move in smooth and normal ways. Sometimes they break.
For retail investors, this is a big problem. We are often the least protected when something unexpected happens. We do not have complex hedges. We do not have teams managing risk. We usually just have a position and a lot of hope.
Ignoring the worst case does not mean you are optimistic. It means you are blind to a part of reality.
Thinking about extreme outcomes does not mean being fearful all the time. It means being honest about uncertainty. It means knowing how much you could lose and whether you are okay with that.
I am starting to believe that good analysis is not about predicting the future perfectly. It is about not being surprised when the future turns ugly.
How do you personally think about worst case scenarios when you invest?