What is a Black Swan Event?

May 14, 2011

Do You Know What a “Black Swan Event” Is?

Living in Australia we are very used to seeing black swans, so would naturally assume it relates either to a special showing of black swans, or something happening in Western Australia – the state fauna emblem is the black swan.

But, no that is not what a “Black Swan Event” is.  The term originates from the Northern Hemisphere where normally swans are white and it was used and popularised by an American finance professor (who was also a Wall Street trader), Nassim Nicholas Taleb who wrote a book entitled “The Black Swan”.  “A Black Swan Event” is an unexpected surprise that has a major impact on society and history.  People often look back on the event and contend that they were not surprised it took place.

Unfortunately in recent times, and especially over the past few months, there have been a number of unexpected (Black Swan) events – floods and cyclones in Australia, earthquakes in New Zealand, Japan and Burma, a tsunami in Japan resulting in a nuclear accidental disaster and continuing unrest in the broader regions of the Middle East.

These “Black Swan Events” have happened in rapid succession and have both individually and collectively had a significant impact on society as well as on world investment markets.  Where one event will have an outlier effect on equity markets, several events have created a diversion in the general global economic recovery we have been witnessing recently.

Andrew Frith of The Self-Managed Super Specialists believes that, whilst these Black Swan Events have created a diversion in the general global economic recovery the general recovery scenario has not been significantly altered. 

Andrew Frith is CEO of Leenane Templeton The Self Managed Super Specialists Pty Ltd and a Financial Planner







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