We all want to be able to explain how things happen. Especially something as traumatic the COVID-19 pandemic. And sometimes, there’s a comfort in deciding that something could have been predicted, but everyone missed it. Such are black swan events.
“While it would be nice to blame the cosmos for throwing us all a catastrophic curve ball, there are measures we can take to protect ourselves,” says Richard Cayne of Meyer International in Bangkok Thailand.
A Black Swan is Truly Unpredictable
Nassim Taleb explained the concept in The Black Swan: the impact of the highly improbable. He defined a black swan event as something that is 1) unpredictable, 2) has an extremely profound impact, and 3) seems inevitable when assessing the situation after it happens. For example, the dot-com bubble has been designated a black swan because the internet was a brand-new concept that no one had faced yet. So, no one had any context to predict that these tech and e-commerce companies could fail as much as they did. Of course, looking back on that financial fiasco, many would, with the certainty of 20/20 hindsight, claim that we all should have seen that bubble burst coming.
Other black swans could include the 9-11 attacks and the Soviet Union breaking up. Taleb, however, does say that categorizing an event as a black swan can be a matter of opinion as well.
COVID-19 is not a Black Swan
As we are in the middle of the COVID-19 crisis, many commentators are already considering it a black swan event. But is it? While it is, by every stretch of the imagination, an event with extreme impacts, it was not necessarily unpredictable. Although we don’t expect a pandemic to hit every day, they do occur and most governments have committees, if not entire agencies, tasked with preparing for outbreaks and pandemics. We may not have been able to predict the exact response and implications of this particular pandemic, but it was not completely unthinkable. I’m sure we can all think about movies and TV shows that realistically imagined life during a pandemic, with and without zombies.
How to Prepare for Turmoil, Unforeseen or Not?
Whether or not COVID-19 is a black swan, can investor protect themselves against the unpredictable? Yes, to a certain extent. Imagining every possible scenario then strategizing to survive them is impossible. But discussing your investment portfolio with a trusted financial expert like Richard Cayne allows you to cover major events and how best to plan for them. You may not be able to predict a black swan, but by being prepared for most events, you can lessen the impact of the unpredictable.
