The Black Pterodactyl Event

Most investors are familiar with the idea of a Black Swan event.

A black swan is an unpredictable event that is beyond what is normally expected. Black Swan events are characterized by their extreme rarity, severe impact, and widespread insistence they were obvious in hindsight.

Black Swan events were discussed by Nassim Nicholas Taleb in his 2001 book ‘ Fooled By Randomness’, which concerned financial events. His 2007 book ‘ The Black Swan’ extended the metaphor to events outside of financial markets.

Taleb regards almost all major scientific discoveries, historical events, and artistic accomplishments as “Black Swans”-undirected and unpredicted. He gives the rise of the Internet, the personal computer, World War I, the dissolution of the Soviet Union, and the September 11, 2001 attacks as examples of Black Swan events.

However, when one looks at what he characterizes as a Black Swan financial event in the past, they do not seem all that rare really. For example, events such as the dot-com bubble, Great Recession, and now a pandemic.

That means we have already had THREE Black Swan events in the last two decades. Something which happens every seven years or so is hardly an event of extreme rarity.