Chart of the Week – Black Swan Event?

Welcome to this week’s Chart of the Week.

I recently saw a survey highlighting that fund selectors believe the most significant market risk is a ‘black swan’ event.

So, what is a black swan event?

This is a term used to describe a rare, unpredictable event that has a major impact. The concept was popularised by Nassim Nicholas Taleb in his 2007 book The Black Swan: The Impact of the Highly Improbable. Taleb uses the example of the discovery of black swans – birds that were thought not to exist until they were discovered in Australia – to illustrate that unforeseen and improbable events can and do happen.

This week’s chart shows a number of significant crisis events that have had an impact on markets over the last 50 years, including Black Monday, the tech bubble that burst in 2000, the 2008-2009 global financial crisis and COVID-19. Despite the setbacks caused by these events, our chart shows how an initial investment of £10,000 in 1972 would now have grown to over £1.3m, which is a staggering cumulative return of around 13,000%.

The question for investors is whether any of these events would have caused them to deviate from their financial plan. It highlights one of the greatest challenges for investors, which is holding their nerve and not reacting in a knee-jerk fashion to adverse events by cashing out. The long-term goal is to accumulate wealth over time and this will mean weathering uncomfortable periods. As investment managers, we run diversified portfolios constructed using a range of asset classes. One of the important benefits of this multi-asset approach is that it’s designed to help to cushion against the effects of the black swan events that will inevitably have an impact on markets from time to time.

Key Takeaway: Taleb’s concept of black swan events challenges conventional wisdom about risk and uncertainty. From an investment perspective, the key takeaway is to understand there are limits to the extent we can predict future events based on past data and recognise the importance of constructing a portfolio designed to withstand unexpected shocks. This is why we are so passionate about the benefits of multi-asset investing.

Have a great week,

Nathan Sweeney, Chief Investment Officer of Multi-Asset

Important Information: This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Clever to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. You should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine – together with your own professional advisers if appropriate – if any investment mentioned herein is believed to be suitable. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice.

All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. Issued by Clever Adviser Technology Ltd (Clever), a company registered in England and Wales (company number: 2910523) with registered office at Watergate House, 85 Watergate Street, Chester, Cheshire CH1 2LF.