Buy When The Black Swan Flies; Sell When It Comes Home To Roost


  • Market-beating self-directed value investors buy wonderful companies with strong fundamentals when macroeconomic events produce attractive valuations.
  • Then sell or reduce the holding on weak fundamentals or inflated valuations when microeconomic events erode the company's financial strength or the demand for its products and services.
  • But Mr. Market continues to entertain the purchase of attractive fundamentals at otherwise high prices and narrow margins of safety.

An age-old adage in value investing dictates the purchase of the common stocks of wonderful companies with strong fundamentals when macroeconomic events artificially drive down the ticker prices. Then sell or reduce the holdings when microeconomic events weaken the fundamentals.

In other words, buy on the indirectly unrelated macro event and sell on the directly related micro event.

Two powerhouses of investing wisdom, essayist, Nassim Nicholas Taleb and value investor, Warren Buffett have each succinctly defined the macro and microeconomic impacts of intelligent investing.

The Black Swan

In his bestselling nonfiction book, The Black SwanThe Impact of the Highly Improbable (New York: Random House, 2007), Mr. Taleb presents his black swan theory or the extreme impact from certain kinds of rare and unpredictable events or outliers. He then explores the human tendency to find simplistic explanations for the occurrence in retrospect. This rationalization is in spite of an investor taking a beating as a result of the surprise episode.

The timing of the book was profound as the Black Swan event, now known as the sub-prime mortgage crisis that led to the Great Recession, occurred one year after Taleb's book was published.

But Mr. Taleb writes that he does not attempt to predict Black Swan events. To the contrary, he proposes that being aptly prepared for these surprise macro events, should one occur, is more prudent than actually predicting them. He illustrates by suggesting a Black Swan event is a "surprise for the turkey but not the butcher."

His theory translates to the typical Wall Street philosophy of trying to predict market fluctuations, i.e., the market timer as the turkey. The self-directed investor should outwit the turkey by manipulating the market's ebb and flow to his or her advantage after they unexpectedly occur, i.e., the value investor as the butcher.

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Disclaimer: David J. Waldron's articles, blogs, and podcasts are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not ...

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