 |
Thursday morning saw a “black swan” event—something 100% unexpected—shake global finance. The Swiss National Bank (SNB) announced an immediate end to the Swiss franc’s artificial “peg” to the euro.
Breaking the peg sent the value of the franc skyrocketing… and sent the Swiss stock market into an instant 15% “flash crash.” Swiss stock investors lost about $100 billion by the end of the day. It was the worst single-day loss for the Swiss market in 25 years.
The end of the Swiss franc “peg” sends the value of the franc soaring… and financial markets crashing
In ancient Rome, educated men assumed swans with black feathers did not exist. Then Dutch explorers discovered them in Australia in 1697. The discovery shocked the Western scientific community.
Economist Nassim Taleb coined the term “black swan.” Financial “black swan” events like the SNB move can happen at any time. They decimate the wealth of the unprepared. For example, imagine you were a Swiss investor 100% invested in the stock market. You just saw your entire net worth plummet 15% in a matter of minutes. That’s a huge hole to climb out of.
It’s why Taleb suggests investors establish robust, “anti-fragile” financial foundations. These are financial strategies that don’t just gird for risk… they embrace volatility. Your financial security becomes even stronger when the swans arrive.
We agree with Taleb. Our asset allocation models include classes—like instant cash options—that use volatility to our advantage. When the rest of the world is cowering, subscribers who employ our techniques see their bottom lines swell. It’s “anti-fragility” at its finest.
To learn more about black swans, read these Taleb books: Fooled by Randomness,The Black Swan, andAntifragile: Things That Gain from Disorder.