Black Swans: The Enemy of All Perfect Plans

“Didn’t see that coming!”

A worldwide disease pandemic. An explosion of race related unrest across our nation. Oil prices going negative. A global financial crisis. A real estate bubble. The Dotcom bubble. 

Pundits will blame someone for not seeing “it” coming. Consultants will charge a fee for helping you see it coming next time. And academics will study the profound reasons why we didn’t see it coming last time.  

When all the pontificating, finger pointing and blame shifting is over, one sure fact remains – it surprised us. And something else (equally unexpected) is likely to surprise us again. 

Professor Nassim Taleb is a specialist in the field of uncertainty (I think…). His most famous book is one in which he coined the phrase “Black Swan,” also the title of his book. The idea of the Black Swan comes from the one-time belief that black swans were entirely mythical. They did not exist. Until they did.

Explorers to western Australia discovered the existence of the once-fabled bird in the late 1600s. So Taleb borrowed the idea to label events that come as a big surprise and are difficult to predict. 

Per the above examples, they happen to big companies, nations and even entire planets. But they also happen to you and me.

Considered at a personal level, here are three things to remember about Black Swan events.

1. Black swan events are going to happen. Whether it is an automobile accident, a freak event that harms your business, an unexpected illness in your family or a lawsuit that seems to come out of left field. 

2. You cannot predict them. You can’t predict the timing. You can’t predict the content. You can’t predict the kind of damage that will be done.

Does that mean you are helpless? 

Absolutely not. 

3. You can prepare for them. Nassim Taleb also championed an approach to dealing with Black Swan events at the national or societal level. He advocated an approach he calls “antifragile.” Lamenting the lack of a good word for the opposite of “fragile,” Taleb invents “antifragile.” 

With this fascinating idea, he advances the notion that some things actually benefit from randomness, disorder and stress. Something that is simply resilient resists external shocks (that’s good). But a thing that is “antifragile” actually gets better under stress. For example, he says, bones grow stronger due to external load (weightlifting).

So how does an individual become more and more “antifragile?”

That’s where real financial planning comes in.

Much of what passes for financial planning today is really investment planning, based on ideal (or at least steady) assumptions. “Mr. Smith, let’s assume your retirement assets grow at 10% a year for the next 20 years…”

The obvious problem is that investments don’t do that. They go up and down, often at very inconvenient times, leaving unexpecting investors clutching their chests and gasping for air. There are certainly periods where investments averaged 10% a year, but they likely went up and down over 20% in any given year to get there. 

When he was Supreme Commander of the Allied Expeditionary Force during World War II, General Dwight D. Eisenhower said, “Plans are worthless. But planning is essential.”

He was saying that even the best plans are worthless in their attempts to predict Black Swan events. But the process of planning, of becoming more and more “antifragile,” was invaluable in preparing for the unexpected.

Black swan events demand that we begin the planning process with the mandate of becoming more and more “antifragile.” 

Because even though you don’t see it coming…its coming.

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.

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