Black swans is a term that refers to the decimation of the investment portfolio due to some catastrophe that will bring everything around.
It is a kind of snowball, which packs more and more problems.
Don’t be afraid of ghost stories, you won’t find them on the investia.cz server. In the investment world, the term black swans is carried over into a radical reduction in the value of the portfolio. The triggering mechanism is usually a major natural or human disaster. For example, a nuclear accident in the wake of the Japanese earthquake or the global economic recession caused by the collapse of Lehman Brothers.
Black swan in literature
The Black Swan is the title of the book of the same name, published by Nassim Nicholas Taleb. In addition to being a writer, he works as a philosopher, essayist and university professor. In the financial world, his word has great weight.
The black swan is based on the mistaken assumption that the swans are only white. This situation took place in the 17th century in the Netherlands. Since then, the term black swan has been used for something that is very unlikely but has huge consequences. A necessary condition is to show later that it was possible to logically derive the “catastrophe” in advance and thus prevent it.
No one knows in advance when the black swan will strike. On the contrary, they can be defended against the investor buying investment gold.
Investment strategy of black swans
Another recommended investment strategy is risk hedging. You divide all your investments between two extremes. You invest four-fifths of the investment portfolio in the most stable investments. These are government bonds or deposits such as treasury bills. You invest one-fifth of the value of the portfolio in the most risky assets. In this case, the shares of companies that do not yet have a stock exchange history or the shares of companies operating in developing countries.
The moment the black swan arrives, it turns the entire investment portfolio upside down. Once capital markets have seen the biggest decline, it is best to buy all available assets, as they are available at some of the lowest prices. Stocks often resemble a swing that is once up and once down. By buying securities at their bottom, you increase your chances of future profits. But this is a general rule.