The Predictable Unpredictability of Black Swan Events

Watching as stocks rise and fall. Image Source: Unsplash

Just buy low, and then sell high. Described at such a basic level, the stock market sounds incredibly welcoming, and utterly easy to play. Yet, as anyone who has actually given it a go can concur, the stock market can be a deeply unpredictable beast. There can be gigantic unforeseen events, that even the people in the know have extreme difficulty forecasting. These types of incidents are known in the industry as a black swan moment.

 

What Is It?

The term was first popularized by an acclaimed finance professor at NYU, named Nassim Nicholas Taleb, when he used it in a 2007 book that he wrote. Interestingly, just a year after he wrote the book, warning about the impact of an unforeseen tragedy in the markets, the 2008 financial crash happened, ultimately proving his theory in one of the most destructive ways possible.

Taleb describes a black swan incident as being made up of three parts. Firstly, that it must be such an extremely rare event that it, therefore, makes the likelihood of being able to predict it completely unknown; secondly, that it then has an incredibly disastrous impact when it does happen, and lastly, is then explained in great detail, using hindsight, as if it were actually completely predictable. 

To better give you an understanding of black swan events, here’s another example of one of the biggest incidents in recent memory.

 

Dot-com Bubble Burst

Beginning in the late-eighties, and continuing throughout the nineties, a burgeoning technological marvel swept into the world. This was, of course, computers, which now found themselves being used nearly everywhere. They were used by people at work, in offices and factories, at retail stores, and even schools to aid learning. This was also the time period where the machines first started arriving in people’s homes, being used as entertainment systems, and wowing owners with their capabilities.

Then came the wide-spread roll-out of the internet, which completely revolutionised people’s lives, now allowing them to do things like talk to friends and family on the other side of the planet, and importantly for businesses, shop online. Subsequently, thousands of internet based companies started up, and at first, absolutely thrived in this new era.

This led to a massive growth in the Nasdaq Composite stock market index, as many people were keen to invest in this apparent gold-rush, which then resulted in a huge bubble. As everyone predicted that this would keep going up and up, as computers and the internet were here to stay, no-one foresaw the massive dip in capital that happened in 2002. This crash or bubble burst, took down with it many internet companies, as they not capitalized well enough to survive such a devastating event. In fact, some of the only ones to get through it, went on to become some of the biggest companies in the world, such as Google and Amazon.

Since this disaster happened, economists have constantly asked the question of could the tech bubble burst again?

 

Where Will It Strike Next?

Now that industry insiders are aware of black swan events, this can lead them to constantly be on the lookout for the next one, even though the whole point of a black swan disaster striking, is that they are almost impossible to detect before it happens. One area of the stock market where people are predicting such a crash, is in the world of cryptocurrencies. This is because, cryptocurrencies can be completely wild in their fluctuating performance in the markets.

However, just because it is being predicted doesn’t mean it is going to happen, such is the nature of a black swan event. Plus, cryptocurrencies have become much more ingrained in society in the last few years, and seem more stable than ever. For example, people now use them to purchase goods, and the most popular cryptocurrency, Bitcoin, can even be used to gamble at websites such as Vegas Slots Online. Their review team has produced a tantalising list of the best Bitcoin casinos around, allowing users to select one that aligns perfectly with their demands. Each listed online casino offers a superb gaming experience, and there’s also numerous sign-up offers, including free spins and welcome bonuses.

Only time will tell though, showing us exactly what the future holds, and whether a black swan event will strike soon.