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Black Swan

The Stock Market is more like Vegas and less like a clearinghouse for credible companies seeking capital from disciplined investors.

It’s full of IPOs and companies selling the next big thing with no history of profits or steady operations to unsuspecting investors looking to cash in on the next Amazon.

It’s full of speculators trying to beat the market – banking on predicting the timing of the market to reap profits on upswings and downswings.

If hedge funds and other institutional investors with their sophisticated forecasting tools and algorithms rarely beat the market, what chance do mainstream investors have?

So while Wall Street speculators chase that mythical unicorn along comes the black swan to throw everything upside down. No Wall Street investor is safe from the black swan, but what exactly is it?

A black swan is an extremely rare event with catastrophic consequences. It cannot be predicted, but many will claim after the fact that it should have been predictable. Black swan events can cause catastrophic damage to an economy. Standard forecasting tools are futile in the face of a black swan.

The term black swan was coined in 2007 by Nassim Nicholas Taleb, a finance professor and former Wall Street trader. Little did he know that the term would take center stage a year later with the collapse of the markets due to the subprime mortgage debacle.

The 2008 market collapse that spurred the Great Recession had all the hallmarks of a black swan – unpredictable, catastrophic, indiscriminate.

In hindsight, many analysts claimed the 2008 collapse was predictable. In reality, only the investors of “The Big Short” fame accurately predicted the asset-back securities debacle.

Fast forward to 2020, and the markets have been hit with something far less predictable and potentially more devastating – the Covid-19 pandemic. Like 2008, the economic collapse brought on by the pandemic was unpredictable, has been catastrophic, and has been indiscriminate in its destruction with very few spared from its economic fallout.

The main point Taleb was trying to make about black swans is that because one can always be lurking around the corner, it is essential for investors to always assume a black swan event is a possibility and to invest accordingly.

Investing to withstand the catastrophic events of a black swan starts with getting out of the pond where the black reaps destruction – Wall Street.

Because no amount of analysis or any forecasting tool can predict or withstand a black swan event, the smart thing for investors to do is to not play in its sandbox.

Smart investors invest like a black swan is always around the corner. How?

They don’t invest in Wall Street, where they can get trampled by the herd at the appearance of a black swan. Smart investors seek out assets and with a long-term perspective that is impervious to the dips and falls of Wall Street and black swan events.

Speculating and timing the market goes with the Wall Street territory. That’s why successful investors don’t assume. Timing doesn’t matter to them.

Good, bad, it doesn’t matter to the smart investor. Because they invest in cash flowing tangible assets that grow over time and are recession proof – they don’t run at the sight of a black swan. They know there could be fluctuations now and then (nobody was immune to the drop in 2008).

Still, over time, cash flowing tangible assets such as commercial real estate, agriculture, energy, and productive businesses will appreciate, so there’s no need to fuss over short-term fluctuations.

With income-producing real assets, cash continues to flow during panics.

While everyone else gets steamrolled by a black swan event, sophisticated investors stand firm with no worries over cash because their recession-insulated assets continue to cash flow. Also, the type of assets these investors are invested in preventing the type of selloffs that plague the public markets.

Professor Taleb, the man who made the term black swan famous, advocated investors to invest like there’s always a black swan around the corner.

Sophisticated high-net-worth and institutional investors have been investing like this for years. They’re always prepared for a black swan event. The arrow in their quiver to combat disaster is the income-producing tangible asset.

Successful investors know that in the long-run, these assets will provide consistent cash flow, deliver some of the best risk-adjusted returns of any investment class, and reliably appreciate over time.

For investors tired of the Wall Street roller coaster and tired of looking over their shoulder for the next black swan, there has never been a better time than now to get started with the right investment assets – ones that will withstand black swans.


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