We call our business “Black Swan Event Financial Planning” for a very specific reason – to keep reminding ourselves that, despite the best efforts of the legions of financial analysts in the world, there is an awful lot that nobody knows when it comes to giving financial advice.
Too often the exercise of doing projections provides a false sense of certainty about how somebody’s position may evolve over time. It’s almost as if the exercise of coming up with numbers enhances the certainty of a future outcome – without looking into the assumptions behind the calculations. Then, hey presto, some unanticipated change happens, and the projections go out the window.
Changes of this kind are known as “Black Swan Events”, and the crunch is that they happen far more often than theory dictates. This point (the fact that things changed in big ways much more often than they were meant to) was noticed by Nazim Taleb, and formed the basis of his book, “The Black Swan, The Impact of the Highly Improbable”. It also enabled him to pursue a very successful career as a New York fund manager.
The origin of the term Black Swan Event, goes back to Europe in the 1700’s, but the message is clear:
We mustn’t get too cocky when giving financial advice. We must remember that things can change very quickly, either for better or worse, and should stay flexible enough to adjust to the changes, and stay close to our clients.
----------------------------------------------------------------------------------------------------
Contact me if you require an expert speaker on your "financial future" at your next event or presentation.
Ph: (+61 8) 9322 7818 or email: This email address is being protected from spambots. You need JavaScript enabled to view it.
