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What is the "black swan" phenomenon? Countermeasures - FX24.net

    If you are a financial investor, especially forex and stock investment, you will surely know the classic metaphorical phrase: “Black Swan”. It has always been mentioned in economic crises. The phenomenon of the “Black Swan” is not only impressed by the touching of many people's pain, but also because it contains scientific theories about the theory of randomness in a world full of uncertainty. Especially, in the last few months, the Covid-19 epidemic has been causing the financial market to wobble. So what is the black swan phenomenon? What do you do when it appears?

    What is the black swan phenomenon?

    The “black swan” is an unexpected, unexpected event that has serious consequences, but when it did, people tried to attribute the causes to it. This is generally the case, however, the origin of this term originated from the stock market.

    Investors often predict future prices based on past price data. However, there is a very small chance that extraordinary events may occur without unpredictability, causing the financial market to fluctuate wildly. This phenomenon is often associated with large-scale economic crises.

    Usually things are going smoothly, people are believing that things will continue to happen like that and be off-guard. Until one day there was an event that turned upside down everything and caused huge damage to many people. That is the black swan phenomenon.

    No one could predict the September 11 terrorist attacks, the 2004 tsunami in Southeast Asia, the 2008 financial crisis, or the Fukushima nuclear disaster etc. Even the 2015 collapse of prices oil is also one of the unprecedented and unpredictable events.

    The term “Black Swan” was born in 2007 in a book called “The Black Swan” (The Black Swan) by author Nassim Nicholas Taleb, Lebanese-American.

    The reason it was called the Black Swan because it was previously thought that the swans were only white. It is assumed in the beginning that being Swan, it must be white. Until scientists discovered in Australia that there was a black swan, people's consciousness was completely turned upside down.

    Overview of Black Swan Theory

    Nassim-Nicholas-Taleb

    Nassim Nicholas Taleb – Author of “Black Swan”

    In nature or in economics, too, people often believe only in what they know. People also tend to “dig the hair” to attribute the causes to the consequences. Therefore they believe that it is possible to learn from experience to forecast for the next time to minimize damage. However, it is not understood that every black swan phenomenon is a new and unprecedented case, making people unpredictable.

    People often rely on what they already know and forget that there are countless things we do not know, so we cannot imagine “the impossible”. People often have illusions about their predictive abilities, thinking that they can predict all risks and opportunities.

    There are many events that are random, out of the information that one can control. For example, scientists can calculate the exact second when a solar eclipse occurs, but it is impossible to predict the horrific earthquake in Japan in 2011.

    In addition, there is a common psychological phenomenon: Cwe just attribute success to our ingenuity and fail because of an out-of-control incident.

    Major events often occur more financially than in real life

    For example: "If we take from the global population two people with a total height of 3.4 m. What is the probability of each person being high? 3 m and 0.4 m? No, the highest probabilities are 1.7 m and 1.7 m.

    But in finance, things are the opposite. If taken at random from a global population the two have a net worth of £ 14 million. Perhaps the most probable probability is that each person has 7 million pounds? I also do nothing, usually 5,000 on one side and 14 million on the other side is less 5,000 pounds. “

    People tend to ignore big events with low probability

    Taleb (author of “Black Swan”) argues that people tend to ignore big events with low probability because “experts” often make predictions based on the relationships observed in the past. past. He divided the phenomena into two categories and named them Mediocristan (Normal) and Extremistan (Extreme).

    Mediocristan types usually have low randomness such as height, weight, IQ, teacher income; while the Extremistan has a high degree of randomness and has an unusual, unpredictable distribution of properties, population of cities, earthquake damage, commodity prices and securities.

    For example, taking a random group of 100, adding basketball player Yao Ming is tall, the average height index of the group will increase slightly but not significantly. The same group of 100 people, with the addition of billionaire Bill Gates, suddenly, the average assets of the group will increase dramatically. So Yao Ming's height is Mediocristan and Bill Gates's property is Extremistan.

    Recent famous black Swan events

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    There are many unexpected and serious events in the world that you can mention. For example, the terrorist incident on 11.9.2001 in the US; Dot-com bubble in the US in 2001; Tsunami earthquake occurred in 2004; World economic crisis in 2008; Nuclear disaster in 2011 in Japan.

    Right at the beginning of 2020, with the situation of the Covid-19 pandemic, which has been having a severe impact on the global economy that no one had previously predicted, this is also considered a black swan phenomenon. new of the world.

    What should you do to deal with the Black Swan phenomenon?

    First of all, remember carefully: In life, there are many random events that will happen that we cannot predict.

    Next, there are events that appear to be similar, but the nature, complexity, and consequences that they leave will be very different. For example, the SARS epidemic in 2003 looked similar to the Covid-19 pandemic, but the nature of spread and influence by social networks, global economic dependence … may bring new surprises. and new terrible consequences.

    So don't put too much faith in what happened in the past to predict the future. Always be cautious about preventing any possible situation, but do not be too afraid to lose the opportunity.


    Thien-Nga-den-exness


    This article covers financial investment, so what you need to do is:

    • Always diversify your risks in case a certain area fails, you will not be affected too much in the present life.
    • Stay calm before the crisis to think brightly. Accept cut losses if deemed necessary. However, do not follow the crowd to sell off all, but consider adjusting the portfolio appropriately.
    • Do not borrow too much money to invest. The use of high leverage can bring huge profits when conditions are favorable, but it would be disastrous if a Black Swan event happened.
    • Hedge – learn about the correlation between investments in your portfolio and try to keep some investments moving in opposite directions.
    • Make sure you always have a stable source of income, always create a solid cash flow to offset the risks in other areas of investment when it happens.
    • Always prepare a financial resource to be ready to receive unexpected opportunities when a phenomenon like “Black Swan” occurs.

    You have just read the article: “Phenomenon”.What is the “Black Swan”? How to cope?"

    Author: Pham Khuong

    (There is an examination from the Internet)

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