Monday, January 15, 2018

Black Swan Events

By Greg Wright
Certified Fraud Examiner
Certified Financial Planner™

A black swan event is a metaphor that describes an event that is unexpected and has a significant effect on your way of life.  It can impact politics, economics and science.  The concept was introduced by Nassim Taleb, who studied randomness, probability, and uncertainty.   

Black swan events can also refer to your personal life as well as national or international economic/political events.  As a Certified Financial Planner, I have advised folks about the need for contingency plans covering uncertainty. 

When the term “black swan” first came into use, black swans were presumed not to exist.  This phrase was a common expression in 16th century London as a statement of impossibility: "A rare bird in the lands and very much like a black swan."  However, in 1697, Dutch explorers became the first Europeans to see actual black swans in Australia.  The term subsequently became a metaphor to connote the idea that a perceived impossibility or unlikely event might later be disproven. 

I do not limit black swans to politics, economics, and science.  Here are a few personal black swan events that can be life-altering:
  • Home or business destroyed
  • Bankruptcy
  • Public accusations or arrest
  • Accidental death or suicide

Here are a few recent Black Swan economic/political events you may recall:
  • 9/11/2001
  • 2008 financial crisis
  • 2009 European debt crisis
  • 2011 Fukushima nuclear disaster
  • 2014 oversupply of oil
  • 2015 Brexit

Here are a few potential 2018 black swans for you to ponder:
  • EU break-up
  • China real estate bubble
  • Global internet shut down
  • Japan gains nuclear weapons
  • Saudi Arabia gains nuclear weapons  
  • Trump impeached
  • Supervolcano eruption
  • 2% US unemployment rate
  • Deadly pathogen ravages world

What is your plan B?