Personal Wealth Management / Expert Commentary
Fisher Investments’ Founder Ken Fisher, Describes a Financial “Black Swan”
Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses the concept of “black swans” in finance. Ken explains black swans were once considered exceptionally rare animals in nature and therefore symbolic of something considered “impossible.” Similarly, in finance, a “black swan” refers to a truly unpredictable, unprecedented, once-in-a-century event with potentially severe consequences for the global financial system.
Ken thinks people often abuse the term “black swan.” Many apply the term frequently (and incorrectly) to events that occur in most business cycles and hence aren’t truly black swans. As Ken explains, imagined black swans usually do not pack the punch, both in scale and surprise power, to wreak havoc on global markets.
Title screen appears, “Fisher Investments’ Founder Ken Fisher, Describes a Financial “Black Swan”
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Ken Fisher: So sometimes I'm surprised at things people ask me, but lately I've been being asked, could we have a black swan? And then sometimes when that's happened, somebody says, yeah, but what is a black swan? Well, the concept of a black swan is a very, very old concept in nature that implies from hundreds of years ago, impossibility, because the only black swans in nature are in Australia, also heavily concentrated in Tasmania, which is actually a pretty nice place.
Ken Fisher: Which gets me to thinking about the fact that Tasmania is also the place where the tallest hardwood trees in the world grow. The eucalyptus regnans, subspecies of eucalyptus, and grow not as tall, but almost tall as the redwood and taller than douglas fir in North America, where pretty much all the tallest trees in the world grow on the west coast of America-- Washington, Oregon, California, particularly the redwoods, the tallest species in the world.
Ken Fisher: Of course, the Australian Tasmanian eucalyptus regnans don't live nearly as long as redwoods do. And down there in Tasmania, you got all kind of cool things like wombats and Tasmanian devils. And I've been in finance all my life and I know something about devils. And you take a Tasmanian devil's skull, it just looks a lot like a raccoon skull. When I was a kid growing up, there were raccoons every which way. I pretty much thought they were part of my family. But when we think about the issue of a black swan from Australia, they didn't once upon a time know there were black swans in Australia because we hadn't had a lot of people down there. So, it was deemed to be something that would be exceptionally rare, like a genetic fluke among non-Australian swans, which are otherwise white.
Ken Fisher: The concept in finance was largely coined by Nassim Taleb in his book, The Black Swan, where he talked about how some very rare times, like maybe once every hundred years, something comes along that nobody expects, out of the blue, and knocks everything in finance completely asunder. But as he defined it at the time, it wasn't something that comes along every business cycle. It wasn't paraphrase for the reverse of a so-called bubble, which is also supposed to be very rare. But people commonly use the term bubble. After 2007, 8, 9, people came to use the phrase black swan almost around every corner. This could be a black swan, that could be a black swan, the other could be a black swan.
Ken Fisher: And the fact is, black swan is something that, in finance parlance, should take a whole system globally, down big, unusual, not something you're looking for, largely unprecedented, sideswipes things and makes the stock market and the bond market and banks and everything else have tremendous difficulty. When someone says to you, there's a black swan coming, you better force them to tell you why this is a really different, unusual thing that normally never happens and hasn't happened for a really, really long time. Not something that happened like the last business cycle or the business cycle before or that commonly happens in business cycles because the black swan is supposed to be like it was before we knew there were black swans in Australia. Commonly instead, as if you had a Tasmanian devil in Europe, which would be very rare. Then if a then white swan from Europe or North America or wherever you would find the swan was black, which would mean an extraordinary genetic mutation. So, thank you for listening to me.
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