Is Your Portfolio Ready for Black Swan Events?

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Greater fools is a term I’ve used often and the anti fragile portfolio greater fools that term was coined by a financial writer back in the 1990s by the guy by the name of Christopher Byron. Basically, you know the people out there you the Wall Street trying to take advantage in essence you being the greater fool you being the one that’s left holding the bag big

pile of investment excrement that’s been laddered up and you end up with it in the end when it falls apart. Conventional wisdom and the echo chamber known as business news when it comes to market sell -offs, whatever it may be, is that, you know, it’s all going to end, okay? When bear markets are happening, things are falling apart. It’s all going to be over once.

once the average retail investor, the greater fool, sells. Once you throw in the towel and you sell. I’ve talked about this in terms of casino chips. When you sell a stock, it’s amazing how many people do, can’t get their arms around this concept. You’re not trading in a casino chip. you’re stock, got to get stock certificate.

Stocks trading at $20 and you want to sell it. OK, the bid is $20. OK, somebody was willing to buy it for $20. You’re not exchanging it for that. you had rather one share at $20, if you had 100 ,000 shares at $20, guess what? The bid.

would probably drop because the amount being sold, the price would drop. It’s not a casino chip. You’re always selling to somebody else. There’s two sides to the transaction. It is, it’s kind of interesting. And I wrote this, the only market, stock market is the only market out there is when they hold a massive sale. They hold a massive sale and everyone says, I want out.

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Everyone leaves the store waiting for the market to go higher in order to buy. So someone’s buying. Someone’s buying. There’s somebody on the other end of the transactions. Who is that? Smart money. Smart money. I mentioned this not too long ago. Again, is JP Morgan said this. In bear markets, stocks return to their

Owners. OK, what does this have to do with the anti -fragile portfolio? This is a concept, OK, that I’ve written about. We’ve discussed here extensively. Again, one of my favorites out there, author, philosopher, Nasim Nicholas Taleb. And he had a he had all time. was a bestseller. Must have. I think it was. was genius.

He wrote a book, Black Swan, Concept of Black Swans. And what is that? It’s basically things that happen that you don’t see coming, a black swan event. And oftentimes they use that phrase black swan, and it’s not a black swan. It’s not. These are things that people should have seen. People were talking about it, but because it’s, my God, market to sell off. No one saw that coming. No, no, plenty of people did see it coming.

Not many black swan events. when preparing for one’s future, more concept that needs to be taken into account is black swans. So again, rather than planning for retirement, what do you do? You prepare. Again, I’ve talked about that here on the program for some time. There’s Navy Seal describe this idea. He says, you can go into battle.

You go into battle with a map and a plan. When you get on a battlefield and the terrain and conditions are different than what you expected, what do you do then? You go with the terrain. Warren Buffett, this is back in 2007. This was his annual message to shareholders. It was in the form of a help wanted advertisement. He said, wanted a young man or woman with the potential to manage a very large portfolio?

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The ideal candidate must be someone genetically programmed to recognize and avoid serious risks, including those never before encountered, other key requirements, independent thinking, emotional stability, and a key understanding of both human and institutional behavior. So what Taleb and the Navy Seal and Buffett and myself are all trying to get across is to, guess what, expect the unexpected. When a market sells off for no apparent reason, don’t be surprised.

When market skyrockets and what you perceive as no news, don’t be perplexed. Remember Forrest Gump? Remember Forrest Gump when he was running in a cross country and he steps in a pile of shit and he goes, know, shit happens sometimes. And that’s what a guy came up with the button.

The people, the investors that lose time and time again, and these are supposed gurus, hedge fund guys, money managers that continue to go out of business at an ever accelerating pace. the stock brokers and so -called financial advisors promising ridiculous returns, idiots on radio and television pitching their magical software trading programs, whatever it may be. They’re going to make you money no matter what the market is doing. Yeah, yeah,

sure. You’re gonna lose. You’re gonna lose. The arrogance that they have is that they don’t know what they don’t know. Yeah, I try to explain this to my kids often all the time says, you know, because they’re kids and I think they know it all. I says you don’t know what you don’t know. It is in the field of psychology. This is called actually it’s got a call. It’s called a Dunning Kruger effect.

And essentially it’s a cognitive bias in which people of low ability have the illusion of superiority and they mistakenly assess their cognitive ability as greater than it is. This cognitive bias, this illusion of superiority comes from the inability of low ability people to recognize their lack of ability. They’re not self -aware.

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Now they’re going to tell you they are. get the Paul Krugmans of the world, the Joseph Stiglitz out there, the Alan Blinders. how bright and how smart and how intelligent they are. again, they can’t even effectively manage their own actual competence or incompetence. Again, they’re the same ones that tell you socialism’s great. And

You deal with these people, you’re in for it if you listen to them. We’ve talked about resilience when it comes to managing one’s assets, dealing with financial storms, dealing with credit corrections. That’s part of our personal CFO program. Again, this is where I talk about having an anti -fragile portfolio. This is from Nicholas Taleb. This is what he had to say. Some things.

benefit from shocks. They thrive and grow and expose to volatility, randomness, disorder, stressors, and law of adventure, risk, and uncertainty. Yet despite the ubiquity of this phenomenon, there’s no word anywhere. He looked. No word any. couldn’t find a language where there was a word for the exact opposite of fragile. So he said, let’s call it antifragile.

Anti -fragility is beyond being resilient. You can be resilient. You can be robust. Now, if you’re resilient, you can resist shocks and you stay the same. The anti -fragile gets better. Now, this idea, this property is behind everything that has changed over time. Evolution, culture, ideas.

revolutions, political systems, technological innovation, cultural and economic success, corporate survival, good recipes, rise of cities and cultures. You take this concept, this anti -fragile concept, you apply it to your portfolios, and again, you apply it to your life, you’re gonna do quite well. Watchdog on wallstreet .com.