The black swan

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  • 1. THEBLACK SWANThe impact of the Highly Improbable
    Nassim Nicholas Taleb
  • 2. About NassimTaleb
    Lebanese American
    Bestseller author
    Black swan – 12th most influential books post WW II, more than 3 million copies sold
    Professor at several universities including oxford
    Current advisor to IMF & Universa
    He was a hedge fund manager & wall street trader
  • 3. Black Swan- What is this book about?
    Managing risks & reducing the risk of being a victim of life’s circumstances
    Allows one to challenge the status quo in the society
    It adds certainty to the world of uncertainty
  • 4. Change in belief
    People in the old world believed that all swans were white prior to the discovery of Australia
    Severe limitations to our learning from observations
    Existence of white swans does not confirm the non existence of black swans
  • 5. What is a Black Swan event?
    It is an outlier, because nothing in the past can point to its possibility
    It carries and extreme impact, both positive and negative
    Human nature makes us weave explanations for the outlier making it explainable and predictable
  • 6. Black Swan events and opportunities
    Black swan logic makes what we don’t know far more relevant than what we know
    What one knows cannot really hurt us
    No discovery came from designing and planning-they were mere black swan events
    Strategy is to tinker and collect as many black swan opportunities as possible
  • 7. Study, analyse and research
    Study rare and extreme events in order to figure out common ones
    One’s library must contain as much of what one does not know i.eantilibrary
    Society's ingratitude to those who solve problems
  • 8. Stock market crash of 1987
    Largest market drop in modern history
    Those who did not need their investments and those who invested in this period benefited
    Those who needed their investment during this time suffered losses
  • 9. Types of worlds
    Taleb classifies realities into 2 types-
    • Mediocristan:
    The dull predictable world most of us live in
    Jobs here are rewarded in relation to time, effort and skill
    Some kind of equality is possible
    • Extremistan:
    Rewards are based on luck
    High inequality
    Payoffs are huge- few winners & many lossers
  • 10. Scalable professions or business
    Here one is not paid by the hour (author of harry potter books)
    Revenues depend on the quality of decisions
    Business can be scaled and there is no cap on the number of clients you have
    This is black swan driven
    However in ‘work by the hour’ income is subject to gravity (dentist, barber)
    Here revenue depends on continuous efforts and not quality of decisions
  • 11. Categories based on mindset
    Some are like a turkey-exposed to a major blow up without being aware of it
    Others prepare for the big event that might surprise them-black swans
  • 12. The Turkey problem
    The hands that feeds you can be the same one that rings your neck
    The turkey is fed everyday and it feels that humans are looking after its interests till the day of thanksgiving
    A acquaintance behavior may indicate genuine affection but it may confirm his calculating desire to get ones business
    Humans have an optimistic bend and are risk takers but avoid uninformed risk taking
  • 13. More observations
    Awareness of a problem does not mean much
    What we see is not necessarily all that is there- history hides black swans
    We have a natural instance to look for instances to confirm our story –these are easy to find
    We like to summarize & simplify but it distorts our mental representation of the world especially in case of black swan events
    Whenever there is a upward or downward movement of stock the media feels obligated to give reasons for the same- question the value of this information
    Governments are great at telling what they did, but not at what they did not
    Preference for insuring against probable small losses at the expense of less probable but larger impact ones
  • 14. Taleb on risk taking
    Known known’s – things we know we know
    Known unknown’s – there are something we do not know
    Unknown unknown’s – the ones we don’t know we don’t know
    Unknown unknown is an uncertainty that is unknown and is unanticipated and hence unaccounted for in formal decision making
  • 15. Why do not see black swans?
    We worry about those that happened
    We do not worry about those that may happen
    We love the tangible, the conformation, the real, the visible
    We respect what happened and ignore what could have happened
    The challenge is to know the difference between what we actually know & how much we think we know
    When dealing with uncertainty do not focus, look at the big picture
  • 16. Grey Swans
    We can turn black swans to grey swans by reducing the surprise effect and employing new prediction methods
    It is an event which can be anticipated to a certain degree, but is considered to be unlikely to happen and will have sizeable impact on the market
  • 17. Lucky to be alive…
    We are quick to forget that being alive is an extraordinary piece of luck, a remote even, a chance event of monstrous proportion
    Taleb uses an analogy of a speck of dust on a huge planet as the odds of each one of us being born
    Each one of us is a Black Swan
  • 18. THANK YOU….