Black Swan

A black swan is an event nobody anticipated whose consequences are enormous. The name comes from Europeans who believed all swans were white until black ones were found in Australia.

It has three features: it is effectively unpredictable, its impact is extreme, and afterwards everyone explains why it was obvious. The last of those is the most dangerous.

It is also where models built on historical data fail. Anything absent from the last thirty years is absent from the model — which is why products described as safe collapsed in the financial crisis.

Preparing means building resilience rather than forecasts. Instead of guessing what will happen, construct a position that does not break completely whatever happens.

Concretely: avoid debt you cannot service, never stake everything on one asset, and hold several months of expenses in cash. It is dull, but it is the preparation that actually works.