Black Swan is the Black Swan of the market – an event that changes the financial world

In this article, we will explore one of the most profound concepts in the world of finance – the black swan, an unpredictable event that impacts people’s lives worldwide. Understanding the black swan is key to preparing for the future.

Meaning and Definition of Black Swan in the Financial World

A black swan is a technical term used to describe an event that is outside of expectations, has never occurred before, and when it happens, it has a severe impact on the economy and society.

Because black swan events affect financial markets and daily human life, crises such as the COVID-19 pandemic, the Russia-Ukraine war, and the collapse of the cryptocurrency market are all categorized as such.

The Path of the Black Swan Theory to the Present

The story of the black swan dates back to ancient Greece and Rome. At that time, people believed that swans could only be white. It wasn’t until 1697 that Dutch captain Willem de Vlaming discovered black swans in Australia. This discovery changed the previous belief.

From this change, the term black swan came to mean something thought impossible but actually occurs. The literal term evolved into a metaphor for unpredictable economic and political events.

In 2007, as the global financial crisis was about to begin, American risk analyst Nassim Nicholas Taleb published “The Black Swan: The Impact of the Highly Improbable,” explaining this theory in the context of financial markets and economics, using statistical and psychological perspectives.

Three Characteristics of Black Swan Events

Taleb identified three prominent features of black swans:

First, they are beyond expectations because their prediction is delayed. It is almost impossible for people to forecast when such an event will occur.

Second, the severity of their impact. When a black swan appears, its effects are usually widespread, affecting the economy, society, and politics broadly.

Third, the post-event narrative. After the event occurs, people tend to seek explanations and analyses based on data to make the event seem predictable.

Case Studies: Black Swans That Changed the World

Black swans can appear in many forms. The COVID-19 crisis, which began in late 2019, is the most impactful black swan, affecting not only healthcare systems but also the global economy, businesses, and lifestyles.

The Russia-Ukraine war, starting in the late 2010s, is another example. It affected energy prices, global food supplies, and inflation. Countries far from the epicenter, like Thailand, also experienced indirect impacts through slowing global economic growth.

The collapse of the cryptocurrency market in 2022, when Bitcoin dropped below $30,000, demonstrates that black swans can appear in any market.

Investment Strategies to Prepare for Black Swans

Preparing for black swans does not mean trying to predict when they will happen but rather developing strategies that help investors better withstand volatility.

First, diversify your portfolio across various assets such as stocks, bonds, precious metals, and real estate. Having multiple asset classes reduces overall risk.

Second, adopt a long-term investment approach. Although black swans can cause disruptions, market history shows recovery over time. Bitcoin falling below $30,000 and then rebounding to higher levels is an example. Serious investors should not panic.

Third, use risk mitigation tools like options and futures. These instruments can help protect against severe losses if a black swan occurs.

Adapting to the New Investment Environment

Investors should accept that black swans are part of the investment game. Unexpected events will happen all the time, regardless of how well we try to predict them.

Instead of worrying about black swans, investors should understand that they often bring opportunities. When asset prices fall due to unforeseen events, it is the time for disciplined investors to buy quality assets at favorable prices.

Summary

A black swan is an event we must learn to manage, not avoid. If investors understand the nature of black swans and adjust their portfolios accordingly, seemingly threatening crises can turn into opportunities. No matter how severe the global crisis, those with understanding and backup plans can always overcome the storm.