In the book “Fooled By Randomness“, author Nassim Nicholas Taleb describes an investment strategy known as “The Taleb Distribution”, where the risk of catastrophic loss exists, but is unlikely, while the profit margins are small, but very likely. The XIV is a great example of how this strategy can go very very wrong. Read more about this here.
Two other recent examples also come to mind:
1. James Cordier blowing up his entire hedge fund when natural gas prices unexpectedly went parabolic last year.
2. The Joe Campbell GoFundMe incident, when a retail trader lost everything after attempting to short sell a small cap pharmaceutical stock.