I once asked a bond manager if he had ever held a bond that went into default. Without missing a beat, he replied, “That’s entirely the wrong question. What you should ask me is whether I’ve ever sold a bond at less than 50 cents on the dollar.”
He was absolutely right. I had asked about technical default, and he reminded me that the risk event I sought to identify (i.e., price collapse) takes place when the market perceives the “chance” of default. The lesson was clear: You need to know your subject, but more importantly, you need to ask the right questions.