Black swans have taken their place in the investment menagerie, alongside bulls, bears and dead cats. It is barely a year since Nassim Nicholas Taleb’s best-selling book Black Swan was published, but the phrase has worked its way into the investment language. And like other market concepts, it is already subject to abuse. Taleb took his title from the shock that Europeans experienced when they discovered black swans in Australia. Until then, their data told them that all swans were white, so the discovery was unexpected. A black swan in markets is an event that has not occurred in the past, thus rendering useless risk management models based on historic data. Such a risk model would assume that all swans were white. Mr Taleb suggests his idea has been misunderstood. The problem, he told the CFA Institute this week, is not that black swans occur often. Rather, it is that they have truly catastrophic and unpredictable effects when they do happen, and so risk managers should concentrate on guarding against them. His concept caught on so quickly in large part because the financial crisis that started in August last year revealed, as predicted, that the investment industry’s risk management systems were inadequate. But is the subprime crisis truly a black swan? To call it that might be a convenient excuse. It had been widely noted for more than a year that credit spreads were untenably narrow; US homebuilders’ stocks peaked and started to fall in late 2005; and subprime lenders’ bankruptcies hit the headlines in February last year. This looks like ample warning for a crisis that started in August. It should have been much easier for risk managers to foresee the credit crisis than it was for European explorers to predict the existence of black swans in Australia.
I thought Black Swan was a participant of AF. I think subprime crisis is not a black swan but a bubble.
3L… your point being?
Its from FT…thought you might find it interesting. A break from the exercise in miniata we call studying for CFA.
aah…a break would be a nice momma joke … a break from CFA with an article from FT…makes concepts come rushing back into my brain …who knows some people might actually like it
mumukada Wrote: ------------------------------------------------------- > 3L… > > your point being? At least you can cool it off a bit 3L, by saying there won’t be any BSs in the next exam…lol, that’s if u know, anyway…
Wow, I sign in this morning at work, see my screenname, my hopes shoot through the roof, I’m happy, loved, and accepted all at once…then this shit.
^^ BS…FWIW … we all at AF love you and accept you…
Call me if you need a hug!
There is no doubt that Black Swan chose an outstanding AF user name.
He didn’t have much choice, Sponge_Bob was already taken.
I’d have preferred Green Pixie.