A Black Swan is a term used in finance and investing that refers to an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. These events are typically random and unexpected.
The term was popularized by Nassim Nicholas Taleb, a finance professor, writer, and former Wall Street trader. He described a Black Swan as an event that is rare, extreme, and unpredictable, and yet in retrospect, people attempt to concoct explanations for its occurrence, as if it was predictable.
Examples of Black Swan events include the financial crisis of 2008, the dot-com bubble of the 2000s, and more recently, the COVID-19 pandemic. These are all events that disrupted normal economic behaviors and had severe financial implications.
It’s important to note that a Black Swan event is not necessarily negative. It can also be a positive occurrence that was not anticipated, like the rapid technological advances and resultant economic growth of the internet age.
The idea is that the occurrence of such “Black Swans” should make us realize that our methods for predicting future events or risks are inadequate, as they do not account for these extreme and unpredictable events. Therefore, we should alter our way of preparing and responding to such events.
