A black swan is a highly improbable event. There are three characteristics that define a black swan. First, it’s unpredictable. Second, it has a massive impact. And third, after it happens everyone comes up with some explanation for it that makes it seem like it actually wasn’t random and could have been predicted.
In markets, if you’re not prepared for a black swan, you’re going to end up losing a lot of money. But the question is, how can you prepare if these events are unpredictable?
The first thing you have to do is realize that your predictions and forecasts are not foolproof. No matter how much you study markets, and how much you think you know, there are always going to be unknowns you have to deal with. And not only will there be unknowns, but there’ll even be unknown unknowns. So you won’t even know all the stuff you don’t know! And in a complex system like the market, there tends to be a lot of those. If you don’t accept this, you’re going to keep getting surprised when the “impossible” happens.
There are a number of things you can do make sure your strategy becomes robust enough to survive a black swan. I explain all of them and more in the video above. Make sure to watch!
And as always, stay Fallible investors!