You buy based on maximum expected value for your risk tolerance and then hope you don't end up on the low end of the distribution of outcomes. Example tail out

You buy based on maximum expected value for your risk tolerance and then hope you don't end up on the low end of the distribution of outcomes. Example tail outcomes: - Anti-capitalist uprising destroys all records of ownership. - Massive fraud in companies you invest in. - Competitors outside your holdings outcompete and take the market share. It's pretty reasonable to bet that these won't happen at a sufficient scale to affect you, especially with international diversification, but you do also hope they won't. Also, the stock price is backed by people's perception of the health and growth of a business, and by the price and performance of alternative assets. Pricing is hard. Obviously fundamental earning power influences price, but it's not the only or biggest force in price discovery, especially on <10y scales. As we have seen in the past year, expectations of money supply have a drastic nonlinear effect on stock prices across the market. A major (and unlikely) Fed strategy change could halve the market and keep it below ATH for a decade.