Black Swans Affect Your Business
All Swans are White.
There was a time in Europe when everyone knew that swans were white. No one had ever seen a swan that wasn’t white and no one doubted the truth that all swans were white. If anyone had suggested a swan could be anything but white people would have had serious doubts about their sanity…. after all the evidence was there for everyone to see.
Then Australia was “discovered” by Europe and, as incredible as it sounded to everyone,
were discovered as well.
Of course we shouldn’t be surprised by the fact that a “truth” was proved wrong; after all not too many centuries before everyone knew the world was flat and that if you sailed too far you would fall off the edge!
“Safe as houses”
Up until a few months ago people put their money in houses, as it was “as safe as houses” to do so. Of course we had seen the occasional blip in prices but for them to drop by more than a few percent for a brief period was highly improbable. Sub prime lending and the credit crunch have since made large price drops a reality in many countries.
We also believed in putting our money in the bank for the same reason; banks didn’t go bust, they were full of people who understood money and were very cautious. A run on the bank was almost unknown, was outside most people’s experience and highly improbable. A few small town banks in the US had experienced problems but few people living in Europe and the rest of the world knew of it. Then the highly improbable happened, banks in Iceland froze savings accounts overnight, governments in Europe had to help their banks with huge loans and many banks were effectively nationalised. The unthinkable had happened. Business growth slowed down in many sectors and a world recession loomed.
Some people hadn’t put all their money in the banks, they had bought shares; after all, despite some stocks fluctuating, stock markets worldwide grew year on year and were a good way to grow your capital, provided you spread your risk. Then stock markets worldwide lost tremendous sums and the world entered an uncertain period.