On the eventful hurricane season of 2006, the National Hurricane Center in the United States came up with a forecast of hyperactive precipitation of approximately 8 to 10 successive cyclonic bouts. But ultimately, the ground reality was very straightforward, matching the average precedence. In the early decades of 2006, The Wall Street Journal predicted a dismal year for stocks. Interestingly, The Dow Jones Industrial Average shot up by 16% during the said year. The British government has recently declared that change in climate could reduce global GDP by nearly 14% in the initial years of the 23
rd century.
The stats are alarming, so to say. Also, backed by an astronomer’s discovery, in the year 2004, The New York Times announced that the universe might die a natural death in the vicinity of virtually tens of billions of years. Emulating the same path, The Washington Post foretold that the end of the cosmos would entail 30 billion years. Thus, it remains suspense to predict the destiny of the universe with pinpoint accuracy. One can not be certain of the things happening in 30 billion years from now.
This conceit of predictions and the eternal incredibility when the unexpected converts into expected are the foundations of Nassim Nicholas Taleb’s engaging creation: The Black Swan. It is related to the outbreak of the improbable, the power of the scarce occurrences and the author’s ignominy that despite the empirical evidence, people still pursue with exposure into the future as if one is skilled at it. All swans are expected to be white and one is astounded to find a black swan swimming around merrily.
Taleb was born in Lebanon in the year 1960 (now a US citizen). He ubiquitously lived through the shadow of the black swan when his peaceful motherland was indulged in the crisis of civil war in 1975. He attended Wharton after emigrating to the United States, worked on Wall Street and presently is a professor at the University of Massachusetts. The so-called Black Monday of 1987, when Wall Street was worst hit in a single day, is still a talking point in the financial territory. The reason was still unanswered. Taleb termed it a chance factor which most of the eminent business experts still not admit.
In his previous book Fooled by Randomness, which was a surprise bestseller in the aftermath of 9/11 terrorist attacks, Taleb started serving as an options trader only to claim that stock market projections are not up to the mark as people are perplexed about the price movement. Seeing the price fluctuations, he penned a column against the experts, who imposed fallacious proactive opinions to let people divert their attention from the so-called stock specialists. In The Black Swan, Taleb recounts that the unexpected is the essence to comprehend not only the financial markets but the related past events too.
According to Taleb, history is inspired by jumps, dictated by whims of a singular person and the vices of accidental, the invisible and unpredicted elements are stuck to him. The paradigm shift is slow to observe, yet the change in real-time is almost freakish. Taleb continues that the stock market specialists are kind of swindlers, who support bell curves wherein the prime distribution is in the middle, which is very ordinary and predictable. Taleb claims that wild results of hyperbolic geometry are far superior where anything notable can occur at any moment. The black Swan has been incidentally dedicated to Benoit Mandelbrot, father of fractal geometry.
The Black Swan is quite appealing, written with the command which says the achievements are attributed to abilities and failures are due to external events which are beyond control.
However, the book is not short of drawbacks. The foremost is the lack of structural reasoning. A major portion of the book is written to downgrade others for not seeing the future but can anybody look through to the future? On this note, Taleb oversimplifies the context like he generalizes that the disintegration of the Soviet Union was categorically an unforeseen event that no political analyst saw coming.
The Black Swan is severe to society for failing to expect the unexpected. But it is sensible to concentrate chiefly to get prepared for what is likely to happen. NASA should keep observing the movement of asteroids that are presumed to collide with Earth. In reality, it is beyond imagination. But there is a definite logic behind the truth that a common man never tries to guard against low probability developments. Taleb criticizes that the Wall Street traders listen to his lectures attentively and then when they go back, the financial market is filled with bizarre stock forecasts. However, Taleb has no reliable answer to the pertinent logic of the stockbrokers as to why they should stop forecasting when the institutional investors demand the same. If they abide by Taleb’s view, then the whole stock market system will break down.
The overall review of The Black Swan might be found compelling and it will be followed by another two compulsions, i.e., how to organize both life and investments. Taleb’s suggested resolution to both is controlled by what he has termed as empirical skepticism. In other words, it is meant to doubt everything and try one’s best to maneuver in a way to realize that the thing has not yet taken shape that one is worried about.
What one should avoid is to trust blindly in conventional components, impressive but irrelevant models or anything that is linked to usually distributed bell curves. These are deep-rooted in the socio-economic structure.
It will be unfair if Taleb’s investing career is overlooked, which has a direct impact on his black swan philosophy. Taleb co-founded and continues to patronize a holding called Universa. The main function of Universa is to purchase volatility and tail risk through a long time options scheme.
In any case, the book, The Black Swan throws light on some very unique things. It is highly recommended to read the same if one is curious to know about uncertainties and the means to decrypt them.
Would you like to read more about this topic? This book might interest you: Critique on Black Swan.