Crash Concern

When investors were recently asked what the likelihood was of a crash similar to Black Tuesday (October 29, 1929) or Black Monday (October 19, 1987) occurring during the next six months, the median response was 10%. The actual probability, 1.7%. Why the gap? Stock market declines are more likely to be reported, increasing saliency, and investors estimate crash probabilities based on recent stock market performance. Don’t make those mistakes!