Murphy’s Law and Black Swans

Consider these two situations:

Whole Foods, Inc. discovered and subsequently revealed their CEO had been anonymously touting his firm’s stock for years on an Internet financial chat site. Instantly, their CEO’s effectiveness was massively reduced. Who knew? Who could have thought it?

Suppose you are selling your company to Warren Buffet. The contracts and associated documents are huge, and you don’t pay too much attention to the details, letting your lawyers worry about all that. You especially ignore a clause that states that if before the deal closes the NYSE is shut for more than 48 hours, excluding normal non-business days, the agreement is null and void. Hey, you never heard of such a closure. The date is 10 SEPT 2001.

Don’t you just hate it when something you never even imagined comes out of left field and tanks your investments?

In both situations, a “Black Swan” wakes you up, and you experienced a Black Swan Event (BSE). First coined by Dr. Nassim Taleb, a BSE has these defining characteristics:

  • The BSE is extremely unlikely.
  • The BSE has huge impact.
  • The BSE is so unimaginable it is explicable only in hindsight.

Learn more about this important idea about limits to our knowledge:

Read White Paper–what you don’t know you don’t know

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