Black Swans Do Fly

Under the Education heading on this website you will find some books that I feel are must reads. Perhaps the most important of these is The Black Swan: The Impact of the Highly Improbable by Nassim Taleb.

The premise is that highly improbable events happen a lot more frequently than intuition would suggest. And by their nature the event is not on anyone's radar screen when it happens. Just like no one has ever seen a black swan, a black swan event is something no one has seen or thought they would see. 9/11, Fukishima, the imploding of Lehman and Bear Stearns are all good examples of Black Swans.

Well, with the unfolding events in Ukraine we are seeing another one. Last week the market was hitting new highs and all anyone thought about Russia was the winter olympics. Nobody anticipated Russia would invade a neighbor with possibly grave consequence that no one can forsee.

Because Black Swans do fly and no one knows when, a far term out of the money put spread is something everyone who owns stock should have. Think of it as fire insurance on your portfolio. You hope you never have to use it but that doesn't mean the premiums you paid are wasted money.

In conclusion, I will leave you with this. 1914...2014... "History doesn't repeat itself but if often rhymes" - Mark Twain.


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