Black Swan Conjecture

I'm currently reading a book called The Black Swan: The Impact of the Highly Improbable, by Nassim Nicholas Taleb. Taleb was a trader and derivatives expert on Wall Street, before eventually releasing the aforementioned book, as well as Fooled by Randomness in 2001. I encourage people to learn more about Taleb and his black swan conjecture (you can Google/Wikipedia both items), as well as read the book.

In short, the title is derived from the fact that in 1697, Dutch explorers in Australia discovered the first black swans -- negating centuries of assumption that all swans were white. Taleb expounds on this by stating that black swan events fit the following three criteria:

1) the event is completely unexpected
2) it is highly impactful
3) it is retrospectively distorted; that is, afterward it is rationalized as if it was expected

If you're hesitant or wondering what the practical application is, consider the fact that Taleb's Universa Investments fund (he advises them but does not get directly involved in trading) saw gains between 50 and 110% by the end of 2008. Compare that to the standard 40-60% losses sustained by most fund managers and investment gurus during the same time frame.

To underscore the point, check out the following clip:

http://www.youtube.com/watch?v=_Jli7xPOvIA


It's worth watching the following clips as well:

http://www.youtube.com/watch?v=krU1wPb7i6c

http://www.youtube.com/watch?v=uX4P6I-7JTI


Finally, his website: www.fooledbyrandomness.com

I will continue to post on this general subject going forward, including some upcoming thoughts on utilizing the black swan conjecture in conjunction with strategies proffered by Peter Schiff and Jim Rogers.