It’s extremely unfashionable to be the “Black Swan” crier in your organization, or the person who warns line of business managers about the heavy impact of extreme but unlikely events. In fact just the opposite is the norm, where plenty of company executives get rewarded in career growth and compensation for ignoring risks, or sweeping them under the rug for others to tackle down the road. It’s time to listen—really listen—to what Black Swan criers in your own company are saying.
In 2012, Cyber Monday sales climbed 30% over the previous year’s results. Indeed, Cyber Monday benefits both online retailers as they gain massive Christmas spend in one day, and consumers can shop at work or home and thus skip holiday crowds. And yet, underneath the bustle of ringing “cyber cash registers”, a battle brews as…
For the past 25 years, with their elegant analytical models, quantitative analysts and transplanted physicists have ruled the roost in Finance. However, as global financial flows (and financial products) get more interconnected, complex and opaque; investors and managers are finding this new paradigm terrifying. It’s high time to supplement quantitative strategies with the softer side of risk management—before it’s too late.
When it comes to preparing for low probability but high impact events (i.e. Black Swans), the sad truth is most business executives will do nothing. Why? Nassim Taleb, author of the Black Swan, explains; “It is difficult to motivate people in the prevention of Black Swans. Prevention is not easily perceived, measured, or rewarded; it is generally a silent and thankless activity. History books do not account for heroic preventive measures.
It may be blasphemy, but for one investor, a macro “big picture” approach is proving much more profitable than one that’s (normal distribution) probability driven.