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Black Swan

Feb. 29, 2024
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Josh Viljoen
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Josh Viljoen

What is a black swan event?



A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences.

 

Black swan events are characterized by their extreme rarity and far reaching economic impact.

 

The term was popularized by Nassim Taleb, a finance professor, writer, and former Wall Street trader. Taleb argued that because black swan events are impossible to predict due to their extreme rarity, yet have catastrophic consequences, it is important for people to always assume a black swan event is a possibility, whatever it may be, and to try to plan accordingly.

 

Examples of black swan events that have incurred in history:

 

  1. Crash of the US housing market during the 2008 financial crisis
  2. Zimbabwe hyperinflation
  3. Dotcom bubble of 2001
  4. Covid 19 pandemic


Investment portfolios need to be made as crisis-proof and black-swan-proof as possible. This can be done through proper risk management and diversification across multiple economies, industries and asset classes.


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