"Only the black swan about whom no one speaks is a real black swan".
Before explaining what the "Black Swan incident" is, he often mentions the term, which does not explain the obvious misunderstanding.
Black swan events are extremely low frequency, but have a huge impact. Examples can be found in the stock market, such as the 1987 stock market crash, when the S&P 500 index fell by more than 20% in one day. The US stock market, in over a hundred years, has only once in tens of thousands of trading days, a very low frequency.
N. N. Taleb specializes in such events, and the term "black swan event" is derived from his book. People are often inspired by black swan events, and the reason can be explained by a Chinese saying: "The wise man does not hesitate, there will be a failure".
Taleb wrote an interesting example: everyone bought Macau stock, what is China (1928), Galactic Entertainment (27), should know that the casino profits profitably, there is no ground in the sky, even if the current environment is bad, the casinos are still profitable, but only compared to the peak, not to lose.
All gambling games are like this, the odds of winning are lower. Also, like gambling, all bets are limited to red, even if the gambler is unlimitedly lucky, even if he wins a lot of bets, to a certain amount, the bet is no longer accepted, and outsiders cannot use luck to beat the casino. In the long run, the casino must be profitable in the gambling tournament.
But there is an American casino in the book that is in danger of bankruptcy, and the mood is hurt. Why? It is not because of big players like "Final Twenty-One" who win money on the cards, even in the film, the big players did not bankrupt the casino. The reason for the casino's risk is to provide a horse show, and on the way the tiger suddenly gets angry, rushes into the audience, rapes the audience, triggering a large number of lawsuits, huge compensation.
Another example is that casinos are required to file a declaration with the government every year, expecting the person responsible to be lazy or ignorant and to keep the form unfilled for years. This is followed by government fines, suspensions.
This is why it is called the "wisdom of the mind, there must be a mistake". There are infinite factors in the world that affect the outcome of what happens. Humans or even computers, it is impossible to analyze one by one. The biggest problem, is called the "unknown unknown". This kind of factor has never appeared in history, does not exist at all in the field of cognition, so what to do?
"The unknown" seems hard and not difficult to understand. The 9/11 attacks in the United States are an example. The human invention of the plane almost 100 years ago, no one thought that they could ride a jet, directly hit a building, save for the loss of life, causing a huge blow to the economy of a country, the aviation industry is damaged without talking.
The second example is SARS (non-typical pneumonia), assuming that in early 2003 you buy stocks, the basic factors of the company, the global economic situation, one by one analysis, you calculate that the stock is very, very cheap, the value is realised, do you expect a new epidemic to come, a total disaster. At that time no one knew what SARS was, suddenly there was an outbreak in Hong Kong, everyone panicked, put on masks, hid in their homes, did not dare to go out, natural stock buildings, crowded, this is also an example of "unknown unknown".
The third example is more understandable: the financial tsunami (2008). The current review, of course, many things are clear. To understand the theory of the black swan, it is recommended that you review the financial version of the Apple Daily in September 2008. Two or three days before the collapse of Lehman Brothers, the column or inclination to call for buying, the overvaluation of stocks cloud cloud, no one is surprised that investment banks will also fail, and counter-party risk, etc.
He was not aware of the crisis until about a week before the collapse of Lehman Brothers; because there had been previous comments from Bill Gross, who had mentioned that the "financial bubble" was about to erupt (he had already seen Bill Gross On Investing before the start of the year, so he knew what kind of person he was).
So in the case of the Black Swan incident, the "unknown" is the most lethal. The "known unknown" is not as lethal: for example, Trump has a chance to be elected president, the event is common knowledge, the unknown is just whether it will happen, and if it does, the impact on the market.
The more thought is given to one thing, the less destructive, the more psychologically prepared it is. Merging market forces is smart. The election process is long, the longer the investors think, the more accurate the evaluation.
It is because of the existence of "unknown unknowns" that the more self-aware people are, the more likely they are to die in the Black Swan event. Because they think they can count on anything. The more intelligent the person, the more tragic the death is.
But it is human nature to be self-aware. Walking around, eating fancy clothes, going out to high places, exchanging business cards, crowds of people flying around, can you say to someone else: I can't predict? I don't understand something?
Human nature is to overestimate one's own abilities, self-esteem, and facial expressions. As previously mentioned in the sloppy article in the Xinhua News, even if Jehovah told Noah to avoid the flood and build the ark, it is inevitable that he would struggle. Even if he did not count the money loss, he would be laughed at.
So the most vulnerable are the long-running generals, the financial experts, especially the bull market timelines, the newspaper headlines, the popular TV fund managers, etc., because they admit that they do not understand the opportunity cost of forecasting. They survive in the industry, rely on their reputation, admit that they do not know forecasting, and people say that they are incompetent, "Why do not the experts understand?"
Few experts are like Ray Dalio, who believes that "faces are the most important thing in the world", and that mistakes are the best friend, the best teacher. This is because he does not have to write a daily column in the Oriental newspaper, and he does not have to look for business among ordinary people.
Dart's clients are pension funds, sovereign wealth funds, think tanks and retailers. So even if he admits he doesn't know predictions, it doesn't affect his livelihood. But if his livelihood is based on retail, admitting that he doesn't know predictions is a big problem, and the customers are very likely to give the outspoken walker next to him "the word that can't be stopped" and "the one who doesn't know what's going on".
To summarize: To reduce the impact of the Black Swan incident, the mindset is the key. Taleb's three-word proverb: Be open minded. Be self-confident. Open your eyes. Recognize that you are not an omniscient, omnipotent investment god.
The second is to read more history. Human history basically repeats itself, different black swan events occur, and then a large group of people fall. Not necessarily in the financial market, such as in 1949, the continental regime is easy to choose, choose to stay in Shanghai, come to Hong Kong, or follow the change of government, or even move to the United States, Switzerland, the fate is completely different.
The "barbell strategy" advocated by Taleb is an example of how to deal with the Black Swan incident. The second is to hold more cash, which we'll talk about later. Buffett, although he is the ancestor of the purchase, is not "black swan blind", only he does not use options, but uses a lot of cash from the collateral, and once the stock comes, the best stock sold at a low price becomes the thing in his pocket.
But these are only methods, without a certain mentality, psychologically they will not accept them, or even the other way around. "I succeeded at the bottom this time, short VIX index makes a lot of money, next time it can, next hundred times it can. I am God, you are people, I do not need God to understand the Black Swan incident".
God destroys man, but first he wins, and he becomes blinded by darkness.
This article is translated from Captain America's Shareholder Knowledge Base.