Black Swan Events:How to Position for Profit in Any

Circumstance

RODNEY BEASLEY

Copyright © 2015 by Rodney Beasley

Table of Contents

Table of Contents

Introduction

Black Swan Events Demystified

Major Impact or Effect

Unpredictable Events

The Benefit of Hindsight

Black Swan Events – Implications for Investors

When to Hire an Investment or Financial Advisor

What to Look For When Selecting an Investment Advisor

How to Protect Your Investments to Withstand the Next Black Swan Event

Barbell Strategies for Bond Investments

Option Collars

The Next Black Swan

Lessons We Have Learned from Previous Black Swan Events

About the Author

A Final Word

Introduction

If you are an experienced investor, you probably have heard the term “Black Swan” event and

you probably have even experienced such an event yourself. Maybe when it hit, you made

massive losses on your investments. On the contrary, you probably were one of the lucky ones

and you found lucrative opportunities amidst what others considered as disastrous consequences.

One thing is certain, however, and that is whether you profited or lost as a result of this Black

Swan event, it was not something that anyone could have predicted or foreseen based on their

own vantage points at the time the Black Swan event occurred. In fact, the very nature of Black

Swan events make them only predictable in hindsight. If you are a new investor, you probably

have a very vague idea of what a Black Swan event is and you are probably wondering what the

implications of Black Swan events are for you as an investor. Should such events concern you

and if they should what can be done to prepare for such events?

This book will seek to help you to better understand Black Swan events, and will explain the

implications for investors in the financial and capital markets. The most recent and significant

Black Swan Event was the World Financial Crisis of 2008. This was the financial crisis that

plunged the entire world into a state of depression. Many investors were caught unprepared and

baffled by the happenings. Nobody expected this crisis. Millions of investment dollars burned up

in smoke leaving many investors wondering what had happened. Why didn’t they see the crisis

coming and why even the most seasoned and skilled investors were unable to predict such an

occurrence?

The World Financial Crisis of 2008 sent shock waves right throughout the world’s capital

markets. Investors in all financial markets were affected by this crisis regardless of the class of

assets that they had invested in. The hit ranged from T-Bills to government bonds to global

stocks, none was left unaffected. Without a doubt, investors in the stock market were thrown into

a frenzy. October 2008 went down in history as the worst week in the year 2008 for global stocks

and for S & P 500 stocks. As a matter of fact, the stock market recorded a whopping 30% drop

during this period and volatility levels reached unprecedented highs. When Lehman Brothers

collapsed in September 2008, this marked the rapid sale of stocks as investors became aware that

something was afoot. Nobody wanted to get caught in the bustle. But it was much too late. All

that was left was for the blocks to come tumbling down; the foundation had already been eroded.

The day following the Lehman Brothers collapse, S & P 500 stocks fell by 8.8% in one day! This

was further exasperated by the fact that the US House of Representatives did not pass the

Treasury’s bailout plan. Stock market investors suffered incredible losses during that single 24

hour period to record over US$1 trillion in losses! That was no small thing for investors and if

you had invested heavily in the stock market at that time, you would have no doubt panicked;

you would have no doubt made some unexpected losses.

The United States was not the only country that was seriously affected by the crisis. Europe,

Asia, Hong Kong, Russia and even Mexico suffered similar losses. Investors in general lost

confidence in the financial markets. Everyone was concerned about whether the banks and other

financial institutions were solvent and if they were, whether they would be able to retain any

significant levels of solvency. With investor confidence way down, it was only a matter of time

before everything would come crashing down within the financial markets.

With that being the case, could anyone have reasonably prepared for such an event? When will

the next Black Swan event take place and will you, as an investor, be prepared for the next one?

While nobody really knows the answers to these questions, just the act of asking them gets one to

think more deeply on the subject and to think of ways that the impact of Black Swan events may

be lessened or ways in which such events may be used to the investor’s advantage. Like the

saying goes “every cloud has a silver lining”. The aim is to put yourself in such a position that

when the next Black Swan event occurs, you will be sitting pretty. You will be clearly able to see

the silver lining, may even be able to reach up and touch it for yourself. Yes, you may very well

make losses but at the end of the day, you would have profited from the dreaded Black Swan

event that will leave the ignorant in a state of frenzy. The key is being prepared. Although

nobody can say for sure when the next Black Swan event will occur, by educating yourself about

the financial markets and how they work, you will be better able to make rational investment

decisions and to prepare your portfolios to withstand any looming crisis.

As an investor, you cannot afford to be ignorant. Not if you hope to make positive returns on

your investments. As an investor, education is going to be your best opportunity for dealing with

a Black Swan Event. This book will give you a solid foundation upon which to build your

knowledge of Black Swan events – what they are, how they affect investors, who these events

will affect, and why you need to prepare yourself even amidst the uncertainty of such an event

ever occurring again. Nobody knows for example, when an earthquake will hit or whether they

will hit at all. But there are things that can be done to lessen their impact if and when they do

occur. A disaster preparedness plan goes a far way in helping one to prepare for an earthquake.

Similarly, there are ways and means of securing your investment portfolios should a Black Swan

event ever happen again. This book will get you started on creating your own investment disaster

preparedness strategies and plans.

Black Swan Events DemystifiedWhat is a Black Swan event? It was the author and scholar Nassim Nicholas Taleb, who coined

the term “Black Swan” to describe certain events within the capital markets. He wrote the book

“Fooled by Randomness” to document his findings about these types of events. Taleb’s use of

the term “Black Swan” is based on the fact that swans are usually white in color and until the

first black swan was seen in Western Australia, it was thought that black swans never actually

existed. A black swan was therefore a very rare occurrence and once thought to be impossible.

Similarly, a Black Swan event is one that is rare and deemed as highly improbable or even

impossible. There are three (3) distinct characteristics that Black Swan events always display.

These are as follows:

1. They have a major effect or impact

2. They are usually unpredictable

3. In hindsight, these events may have been predicted based on the happenings leading up to

these events.

In financial discussions, Black Swan events are seen as ‘outliers’ or they may be described as not

following a normal distribution pattern. Many are of the mistaken belief that Black Swan events

always have a negative impact. On the contrary, there are some Black Swan events that are

positively impacting such as the discovery of a new vaccine. The discovery of penicillin may be

described as a Black Swan event since it had all the characteristics of a typical Black Swan

event. It had a major impact, it was unpredictable and in hindsight, the discovery may have been

predictable give the amount of research and the findings that occurred prior to this breakthrough

medical discovery. It is important therefore, that when one thinks of a Black Swan event, that

one bears in mind that it is NOT always a negative occurrence. However, psychologically,

negative events usually have greater psychological impacts and are therefore more talked about

than positive events.

Major Impact or EffectFor an event to be considered as having major impact, it must affect a significant amount of the

population and the impact must be profound enough to warrant concern or attention. This usually

means that geographically speaking, to be considered as a Black Swan event, the event should

have an effect on a large geographical area. The 2008 financial crisis for example, had ripple

effects upon every country in the world due to the globalization of the modern world as we know

it. Such a large number of countries were affected that even though the unravelling of the

financial sector originated in a few states in the United States, eventually the impact was

worldwide. Similarly, the 9/11 attacks on the World Trade Towers in 2001 had worldwide

implications. For any event to be classified under the Black Swan label, it has to be equally

impacting based on the number of people affected by the event.

Unpredictable EventsIf any investor could have predicted that the world would have been thrown into a financial crisis

based on a few bad managerial decisions, he/she would have done something to prevent it from

happening or done something to lessen the impact. They would have made certain that their

investments were safe and that they were well positioned to benefit from any positive

consequences. Those who had invested heavily in the financial sectors would have rearranged

their portfolios to would have included less of these volatile, highly risky investment products.

Investors in Lehman Brothers would have sold all stocks had they seen the disaster that was

about to hit them. Likewise, if someone had known that the World Trade Towers would have

come crashing down thanks to the actions of terrorists, all stops would have been pulled to

prevent it from happening. If the powers and authorities that be, knew the magnitude of the

events that were about to hit, they probably would have put strategies and plans in place to stop

the negative consequences. The trouble is that nobody had predicted the occurrence of any of

these events. Not only that, but nobody could tell the spill over effects that would occur as a

result of these single, once in a lifetime events. The events were simply unpredictable. After all,

nothing like these events had ever occurred before in history. There were no precedent cases, no

examples to cite, nothing on which to make a reasonable prediction. None, that is, until after the

facts. And so is the nature of all Black Swan events. They are usually quite unpredictable.

The Benefit of HindsightIn hindsight, anyone could have predicted the crashing of the financial markets in 2008. Anyone

could have seen that the irresponsible mortgage lending habits of large financial institutions

through the granting of loans to subprime borrowers with poor credit histories was certain to

backfire. It was only a matter of time. The pooling of these loans by financial engineers in an

attempt to lower the risks involved, proved to be a wrong move when the thinking that property

markets were independent of each other was rubbished with the simultaneous nationwide slump

in housing prices. All this took place while investors continued to gobble up what they perceived

to be safe investments that were given triple ‘A’ credit ratings by Moody’s and Standard &

Poor’s credit rating agencies. The only trouble was that the rating agencies that issued these

glorious credit ratings were paid by the banks and were so obligated to them that they failed to

give a fair and unbiased rating. In hindsight, it was inevitable that something would go terribly

wrong. If the auditors were doing their jobs, they could have told you that Lehman Brothers bank

was in over their heads and that their lending practices were not sustainable. How long could the

mortgagers continue to sustain these risky loans and how long was it before the glorious credit

ratings would begin to leak water? It was only a matter of time. All the financial geniuses and the

investment gurus could have told you that the crisis was inevitable, but only after everything had

already occurred; only when it was too late. And don’t we all know that “something was not

right”? Yes, we all know, now.

And every Black Swan event will be predictable in hindsight. This is what makes them of

concern to investors. Usually solutions and problems are only able to be identified after the event

has already happened. However, there are steps that can be taken to prepare for a Black Swan

event. Despite the notion that nothing can be done to prepare for such events, there are measures

that can be put in place to lessen the blows that these events may bring.

Black Swan Events – Implications for InvestorsEvery investor should be aware that any type of investment is risky. Mark you, there are some

types of investments that are riskier than others and with risk comes reward. Whether you are a

risk-averse or a risk loving investor, you must accept that chances are that you will make an

investment and that will make a loss or a negative return on investment. That’s just the nature of

investments. The fact is that nobody has full knowledge of everything that impacts or could

impact upon an investment decision. While there are financial models and standards that are used

as the basis of evaluating the potential of investments, none of these models are 100% accurate,

none of them are fool proof. With that understanding, we can argue that Black Swan events are

likely to occur. While the chances of such events happening are small based on past occurrences,

the fact is that they could occur and they could affect your investments.

So what are the implications of Black Swans for investors? The implications are that despite

financial market theories that are based on normal behaviour of investors, things could deviate

widely from the norm. This means that once you decide to invest, moreso in equities or stocks,

you could lose everything that you invested. On the flip side, a Black Swan event could work in

your favour and you could make extraordinary gains. Nobody really knows for certain what will

happen on the stock market.

There is a saying that “knowledge is power” and this is extremely applicable in the context of

financial markets and investments. The more you know about money, the more you know about

the stock market and how it works, the more you know about economics and globalization, the

greater will be your appreciation for and your preparation for unforeseen events. So, the wise

investor would not depend solely on the advice of investment advisors to make their investment

decisions, but they should first of all know and accept their own risk profiles, have a general idea

of how the stock market works and know what their investment objectives are and the amount

that they are willing to lose in order to realize these objectives. Because the truth is, that in the

stock market, everybody loses at some point or other. Sometimes you will make great gains,

sometimes you will make great losses. The key is to find a comfortable place where a loss is not

devastating to you. This means having a portfolio that is optimally designed to reach your

investment objectives. While you shouldn’t depend on an investment advisor to teach you about

the stock market, an investment advisor can help you to make beneficial decisions. Being

financial experts who usually have expert knowledge of how the financial markets operate,

investment advisors or financial advisors or consultants can serve as valuable guides to investors.

If you want to make the most of your investments, consider working with a seasoned and

qualified investment or financial advisor.

When to Hire an Investment or Financial AdvisorNot everybody needs a financial advisor. Many investors can make solid financial decisions on

their own. But there are some persons who could benefit from the services of a professional

financial advisor. Because these professionals can oftentimes offer the expertise and insight that

you may lack as a lay person, their services can help you to more effectively and more efficiently

achieve your investment objectives. As financial advisors work on the ground, they are usually

positioned strategically to be able to pick up on signals or to see patterns before a regular

investor can. What you may not be able to ‘see’ as an individual investor, a financial advisor can

help you to see clearly.

New investors as well as seasoned investors can benefit from the services of a financial advisor.

They can help you to determine the appropriate asset allocation based on your age, stage in life

and on your investment objectives. An investment advisor can help you get on the right track

towards achieving your financial goals and objectives. Bear in mind that while you may have

some knowledge of the financial markets, an investment advisor can present you with an

objective evaluation and opinion. It is also in their best interest to help you make sound financial

decisions that will give you positive returns on your investments. Realize that when your

investments do well, your financial advisor benefits. It is therefore natural that they would work

hard to make you wealthier and more financially secure. On the contrary, when your investments

don’t do well, your financial advisor stands to lose as well. So at the end of the day, your

financial advisor is on YOUR side. If there is any doubt about this, you should seek the services

of an advisor that you trust and respect.

If you admittedly don’t have the expert knowledge to make sound financial decisions, if you are

uncertain that you have a clear understanding of how to invest optimally, if you have a limited

knowledge about the range of investment choices available to you, you could benefit from the

services of a professional financial advisor. The duties of a financial advisor include guiding

clients regarding appropriate investments, informing clients about investment opportunities,

understanding the client’s financial strengths and weaknesses and advising them accordingly,

and helping clients to develop appropriate investment portfolios. While some financial advisors

focus on the full range of asset classes, some advisors specialize in certain asset classes such as

equities or stocks, insurance, bonds and other fixed income instruments, real estate, commodities

etc.

What to Look For When Selecting an Investment AdvisorFirst of all, it should be noted that no investment advisor is always right. They make investment

decisions based on their limited knowledge and so they are prone to error. However, with

experience and sound judgement, they can help you to make more sound financial decisions.

There are certain things that you need to look for when selecting an investment advisor.

1. The right investment advisor should have the requisite financial qualifications. At the

very least, the right advisor should have an appropriate Bachelors degree in the financial

subjects such as Accounting, Economics, Business Finance, Business Administration or

other suitable financial subject area. A CFP (Certified Financial Planner), CFA

(Chartered Financial Analyst) or a CPA (Certified Public Accountant) designation is not

necessary but is beneficial. Advisors who possess these qualifications are more likely to

be more knowledgeable about financial markets. This is because in order to qualify for

these designations, advisors must have acquired some actual experience (usually 3 years)

working in a financial planning business.

2. The financial advisor should have good communication skills. This means that they

should listen actively and ask questions to ensure that they understand the needs of the

client. They should seek to find out some background information about the client’s

lifestyle, age and investment objectives. If they don’t seem interested in this type of

information, you should probably seek another investment advisor. Be wary of advisors

who talk way too much and are unwilling to listen the client.

3. Your chosen financial advisor should preferably be fully licensed to operate as a

Financial Advisor. For example, a Financial Advisor should have the Series 66 license in

order to be able to sell mutual funds and annuities.

Investors are well-advised to do their own due diligence in ascertaining the authenticity of any

financial advisor they hope to conduct business with. Ideally, you should find out as much as you

can about an investment advisor before allowing them to handle your financial portfolio.

Naturally, there are some financial advisors who have more experience and who are more

qualified to provide you with sound financial advice.

How to Protect Your Investments to Withstand the Next Black Swan EventHopefully by now, I would have made it clear that absolutely no-one knows when the next Black

Swan Event will take place and if it does, no one knows where it will occur, who will be most

affected and how impacting the next one will be. One thing is for certain though is that those

investors who are most informed, most educated and who have the support of trusted and

experienced investment advisors will be better able to bounce back from or weather any negative

effects that a Black Swan event may have on their investment portfolios. So how can an

investment advisor help you to withstand the next Black Swan event? There are five main ways

in which an investment advisor can help you to weather the next Black Swan event.

Firstly, by practising good old, tried and proven diversification strategies, any investor can

better protect their financial assets. This is especially true for stock investments. A diversified

portfolio has the benefit of being somewhat balanced so that when stocks in a certain industry are

not performing particularly well, stocks in other industries may not be so affected and may well

be performing well. What usually happens is that the gains in certain stocks are offset to some

extent by the losses in other stocks. The key is to find the profit-maximizing portfolio that will

allow you as an investor to profit the most under regular market circumstances. Since the stock

market is always moving and always changing, it is important that stocks be monitored on a

daily, ongoing basis. Your investment advisor is able to keep his ears near to the ground and to

act as a watchman on your behalf as an investor. A qualified investment advisor is usually privy

to industry information and market information much earlier than the average investor. This

allows them to be able to take calculated guesses of what is likely to happen to a certain type or

group of stocks based on what is happening in the capital markets. Hence, they are able to make

any necessary changes to your portfolio in order to achieve profit maximization. There are

certain financial calculations and financial models that an investment advisor is able to utilize to

help you maximize your investment profits.

Remember the saying that you should not place all your eggs in one basket? This saying is

basically promoting diversification of assets. For example, while you may choose to invest in

stocks of companies in the financial sector, you would be well advised to also invest in other

sector stocks that react differently to market conditions from financial stocks. Tech stocks for

example, are particularly volatile due to the rapid movement and fast pace of the tech industry.

When mobile phones just came into existence for example, the receiving party of a call was

required to pay the cost of receiving that call. Fast forward a few years down the line and that

technology is now outdated and irrelevant. If you, as an investor had hung your hopes solely on

the ground-breaking technology of cell phones at the time, you would have made losses on your

investments when the technology changed. It would have been wise for you to invest in the

industrials sector such as aerospace and defence which tends to be a less volatile sector.

Volatility has to do with how easily stock prices are affected by changes in the financial markets.

If investors perceive that a stock price is likely to fall, they will quickly sell their stocks in order

to avoid making losses on those stocks. The sale of these stocks will affect the supply-demand

ratio and the price of the stock will change in order to bring equilibrium in the market. If there is

excess demand for a stock, the price will increase to discourage an excess in the market. On the

other hand, if the demand for a stock is low, the price will rise to the point where demand equals

to supply. Diversification is therefore key to a profit-maximizing portfolio of assets and is not

limited to industry diversification but also encompasses asset classes, and geographic borders as

well.

Diversification is an effective way of dealing with volatility and of spreading the risk of assets

within an investor’s portfolio.

A second strategy that is worth exploring with your investment advisor is having a good supply

of cash in your investment portfolio. It is always good to have some amount of liquidity within

an investment portfolio to cover immediate cash needs such as the need to purchase food and

water on a regular basis. Having an emergency fund that will tide you over in case of

emergencies and unforeseen and unplanned occasions such as job loss or lay-offs, is always the

prudent thing to do. In the event of a Black Swan occurrence, it is wise to have some cash

available to deal with liquidity needs. However, the question becomes not if you need to have

cash in your portfolio but rather how much cash to have on hand in order to maximize

investment profits. An investment advisor can help you to figure out the proportion of cash

needed in your portfolio to give you maximum returns on your investment portfolio. While cash

is still king, too much cash can reduce your investment returns since cash is the least interest-

earning asset class since it is the least risky of assets. This is why putting your money in a

savings account is not the best way to invest if you are looking to earn good profits on your

investments. In fact, savings accounts will give you relatively very low rates of return when

compared to riskier asset classes such as bonds, real estate and stocks. It is also not a good idea

to keep all your cash resources in a bank account since accessing this cash in the event of a Black

Swan may prove to be difficult. In addition, having sufficient cash on hand means that you will

be better able to take advantage of any opportunities that may require a quick cash transaction.

Hedging is another way of protecting your investments in the event of a Black Swan occurring.

This investment option is involved and requires a high level of financial expertise. A good

investment advisor should be consulted when seeking to go into any type of hedging. Hedging is

much like diversification in that one investment is used to reduce the negatives effects of another

investment. You may think of hedging as a type of insurance for your investment portfolio.

Hedging involves using derivatives (options and futures) to mitigate risk. A derivative is an asset

that derives its value from another underlying asset. Investment advisors can help you manage

your investment portfolio by using derivatives to protect your investment portfolio from such

things as stock price movement, movements in the price of commodities, changes in exchange

rates as well as changes in interest rates. Bear in mind however that hedging comes at a cost and

any hedging should be evaluated based on comparisons of the costs with the potential benefits. In

other words, hedging means that you will have to give up some of the rewards in order to reduce

the risk in your portfolio. Hedging is usually more beneficial for long term investments in which

price changes can be dramatic. In the short term price swings usually don’t matter as much since

price changes are inevitable and expected. Some examples of hedging strategies include collar

options and tail risk hedging strategies.

Having gold is also a way of protecting your portfolio from adverse events such as a Black Swan

event. After cash, gold is one of the safest types of investment asset to hold. Gold can be used

effectively to reduce the volatility within a portfolio, protect purchasing power in global markets

and minimize losses during adverse market situations. The World Gold Council suggests that

allocating gold to 5% to 6% of a portfolio is optimal for investors with a balanced 60/40

portfolio.

Finally, investment portfolios should be rebalanced on a regular basis. Rebalancing involves

selling winners and buying losers every now and then. Although it sounds counter-intuitive, the

aim is to restore an investment portfolio to its initial target allocation. Rebalancing is something

that is done deliberately to put your portfolio back to its target composition. This is because,

without you doing anything to the portfolio, it is going to change over time because of

movements in the market. Assets that are doing well will tend to take up a greater percentage of

your portfolio while those that aren’t performing as well, will tend to account for a smaller

percentage of your portfolio than originally intended. Rebalancing is done in order for you to

achieve your original investment goals. That is why you established a goal allocation in the first

place.

Rebalancing is primarily a risk management exercise aimed at protecting your investment. If a

particular stock is doing well for example, it will naturally account for a larger proportion of

your portfolio based on the growing dollar value. However, if the market should turn and those

stocks should begin to drop in value, the overall value of your portfolio would be badly affected.

If you had rebalanced before the stock started to decline, your portfolio would have been

protected and you wouldn’t have suffered any sizeable losses. Therefore, rebalancing is

important for minimizing your portfolio risk. Since we don’t know what is going to happen in

the future, but we know that no stock ever does well all the time, then it is advised to rebalance.

Buying losing stocks will allow you to protect your gains and benefit in the long run. Your

investment advisor will help you to make the right rebalancing decisions.

In summary, protecting your investments in the face of a Black Swan event involves a

combination of portfolio diversification, holding cash, hedging, including gold in the mix and

occasional rebalancing of the investment portfolio. While it is likely that profits will not be

maximized with some of these strategies, risk will be minimized which should be your aim if

you intend to withstand the wrath of Black Swan events.

Barbell Strategies for Bond InvestmentsNassim Taleb, author of Fooled by Randomness, utilized a barbell strategy that prevented him

from making massive losses during the 2008 World Financial Crisis. The argument behind this

strategy is that the investor should stay as far from the center as possible when composing an

ideal investment portfolio. This means that rather than being mildly conservative or mildly

aggressive in order to manage portfolio risk, the aim should rather be to be both overly

aggressive and overly conservative. This would involve building and maintaining an investment

portfolio that is comprised of 50% overly conservative assets and 50% overly aggressive assets

although the mix does not necessarily have to be split in that ratio. The aim is to stay as close to a

2:1 or a 1:2 ratio as possible as deviating too much to one end will signify a change in

investment strategy. Bear in mind also that the Barbell strategy mainly applies to bond portfolios

and is designed to take advantage of increasing interest rates. The objective is to have a mix of

short term and long term bonds in the right proportions.

Option CollarsA Collar Strategy is a special type of options trading strategy (derivatives) that is intended to

earn profits while providing protection against sharp drops in the underlying assets. An example

of the collar strategy is shown below:

To calculate the maximum profit using this strategy, the following formula is utilized:

Maximum Profit = Strike Price of the Short Call – Purchase price of the underlying asset + Net

Premium Received – Commissions Paid.

This profit level is achieved whenever the price of the underlying assets is greater than or equal

to the strike price of the short call. The breakeven point is found by adding the purchase price of

the underlying asset to the Net Premium Paid. Option collars are achieved by simultaneously

holding shares of an underlying stock, buying protective puts and selling option calls against the

holding.

One thing that should be noted about collar options is that even though they can prevent great

losses, they also prevent great gains. So this strategy is a protective strategy rather than an

income strategy. It is worth repeating at this point that in investing, there is a strong correlation

between risk and reward; the greater the risk, the greater the reward and vice versa.

The Next Black SwanAs this book is being written, there are stories in the media about a technical glitch at the New

York Stock Exchange that caused trading to come to a halt for approximately 3 hours. However,

the all-electronic ARCA equities market and the AMEX and ARCA options markets were

unaffected by the glitch. The spokespersons have reassured the public that the glitch is technical

in nature and not due to any form of cyber attack on the exchange.

All major stock exchanges in the United States were affected. The Dow Industrial Average fell

by 261 points or 1.5 percent to close at 17,515 points at the close of day on July 8, 2015. Both

the Nasdaq and the S&P 500 indices fell by 1.8% and 1.7% respectively by the end of the day.

In the meantime, the Chinese stock market is experiencing major shocks as the Shangai

Composite Index reaches a three month low. The situation is several times worse than the

financial crisis in Greece and the index is losing several times the value of Greece’s Gross

Domestic Product on a daily basis. These movements have also affected stocks in the US which

have continued to lose value in response to the situation in China. Retirement accounts in the

United States will be negatively affected by the stock market crash in China which has been

compared to the 1929 stock market crash. More than 900 companies have suspended trading on

China’s two main stock indices.

In one single year, China had seen tremendous growth and extraordinary wealth creation. This

growth was largely fuelled by margin investing which is nervously similar to the situation in

1929 when America experienced the Great Economic Depression. China’s stock market boom

has been largely due also to the speculative real estate bubble that was experienced a few months

prior to these happenings.

Questions are circling concerning the fact that the NYSE has handled only 4.2% of US volume

for the month of June 2015; way below its average load. Investors are speculating whether these

events are signs of the next Black Swan getting ready to land. Speculation is that the situation in

China will continue to get worse and the American capital markets will be greatly affected. It’s

time for investors to get their house in order and avoid being caught with their pants down this

time around. The wise investor will take heed and do what is necessary to protect himself. The

situation may eventually be worse than expected or it could be better than expected. In either

case, the wise thing to do is to prepare for the worst but expect the best. Like the popular saying

goes, “if you fail to plan, you plan to fail.” StockSpotify is rolling up the sleeves, getting ready

for whatever may hit us.

Lessons We Have Learned from Previous Black Swan EventsThey say that only an insane person keeps doing the same thing and expecting a different result.

For many investors who have experienced more than one Black Swan Event, if they are honest

with themselves, they will admit that none of these events should have come as a huge surprise.

Even though at the time prior to the occurrence of these events, the consensus may have been

that “we never saw it coming”, in hindsight, if we really take a good hard look at the events

leading up to these Black Swan, we will see that the writing was already on the wall. There are

certain things that these events have in common and one just has to take the time to look back

and discover that everything was happening right under our noses; we just didn’t expect any such

thing to happen. As a result, otherwise brilliant and great investors, failed to see what was clearly

evident.

It’s just like a marriage that is going bad. Usually one party never sees it coming. Yes, there may

have been arguments. And yes, there may have been fights but divorce? It was never a part of the

deal and the partner usually most affected is the one who refused to admit that something was

desperately wrong. Then, when the bottom falls out, they wonder what happened! But all the

while, the signs were there. The late nights, the secretive telephone calls, the lack of intimacy,

the lack of communication, the constant arguments over silly things, the endless hurts. Looking

back, one realizes that they were indeed “in a bubble” and that now the bubble has burst and they

are caught totally unprepared for facing the inevitable.

Likewise a walk down memory lane will reveal to any honest investor that indeed as Nassim

Taleb aptly puts it, that he/she was “fooled by randomness”. And granted, I was among those

who were fooled. In fact, the great majority of investors have been fooled and if we don’t learn

from the past, we will likewise be fooled when the next Black Swan occurs. So let’s actually take

that walk down memory lane if you will. Journey with me and indulge me a little as we look

back at the lessons that we should have learned from previous Black Swans. We will look back

at the most recent one – the World Financial Crisis of 2008.

The experts agree that there are some indicators of a financial crisis about to happen. Among

these indicators are such things as lack of independence and lack of competence of asset rating

agencies, lack of micro-level and country-level transparency, weaknesses in regulatory and

monitoring structures, high levels of public debt, pervasive mismatching of currencies in foreign

borrowing, great exposure to real shocks such as commodity price spikes among several other

indicators. Not to mention the usual herd mentality, dodgy accounting practices and an

unexplainable sense of complacency and infallibility among investors.

Good sense was no doubt lacking with the wholesale granting of mortgage loans to applicants

who clearly weren’t qualified. It was like the world was in a state of stupor. Bankers took on a

type of superman persona…much too big to fail. After all, these mortgages were backed by

collateral. If things go wrong, there would be something to fall back on. When the Lehman

Brothers bank had gone too far, it had to seek a bail out that was not forthcoming. But where

were the auditors in all this? Didn’t the auditors notice that something was amiss? Numbers

don’t lie. But there was too much at stake. How could the auditors bring up such an issue in the

public domain? After all their livelihood was strongly tied to whether they presented a true and

fair view or a fairy tale view that portrayed the bank in a positive light. At the other extreme,

investors and investment experts alike put too much faith in financial models to the detriment of

common sense. Models were blindly adhered to when good sense should have prevailed. It was

not like the first time that something that this was happening. The dotcom bubble a few years

before saw people hanging their hopes on the expectation that stock prices would soar and give

them extraordinary wealth when clearly many companies were just adding the dot com extension

to fool the market. Alas, the market allowed itself to be fooled.

What are some of the lessons learned from the world financial crisis? What can we learn that can

better prepare us for the next Black Swan Event? Well certainly, one lesson that can be learned

from these events is that they are usually preceded by a period of exorbitance and excessive

optimism based on financial models. I am not here referring to natural disasters that only God

really knows when and why they occur when they do. No, I am referring to Back Swans in the

financial markets. Another lesson that can be learned is that by exercising sound judgement and

avoiding herd mentality, chances are that you as in investor will be able to come out from the

next Black Swan event with less smoke burns than the previous one. However, unfortunately,

history will repeat itself and the majority will not be prepared for it.

There is no reason why you can’t be among those who refuse to be led by the crowd. We are

seeing the signs all around us. If it is going to happen, it will be sooner rather than later. Isn’t it

about time you started getting ready? Now, I am no prophet, neither will I consider myself

among the most brilliant of financial experts. But one thing I do profess and that is that I have

been fooled once, I have been fooled twice, I won’t be fooled the third time. Not in the same way

that I have been fooled in the past. And neither will you if you heed my simple message.

About the AuthorRodney Beasley is a serial entrepreneur and avid investor. He is currently partner in several

successful businesses including a rapidly growing petroleum company. Beasley became

interested in entrepreneurial ventures from as early as age 21 and started get involved in

investing in his younger days. He has made huge gains as well as huge losses on the stock

market and has successfully helped several investors to make money through investing in stocks.

This savvy investor has turned a $6k investment into a $150k portfolio in an 18 month time

period. He has many success stories under his belt, but like every investor, he has made losses

also. He still vividly remembers how he was impacted by the internet bubble in the year 2000.

That historic “bubble” reached a climax in March 2000 when the Nasdaq peaked at a high of

5,132.52 prior to closing trading at 5,048.62 followed by huge equity value increases in the

internet technology sectors. This led to investors seeking to benefit wholesale by any means

possible while neglecting the traditional wisdom of fundamental analysis. Consequently, the

bubble burst during the period 1999 to 2001 and many companies that had simply tacked on the

dot com extension to their names in order to see overnight stock price increases failed miserably.

As expected investors in these companies also lost big time. Beasley was unfortunately one of

those investors who had invested heavily and experienced a great financial hurt. That Black

Swan event will forever be indelibly etched in the recesses of his mind. He vowed that he would

never again allow himself to be caught unaware by the next Black Swan event. And true to his

vow thus far, and thanks to prudent investment strategies, the subsequent Black Swan events (the

9/11 attacks of 2001, the Housing bubble of 2005 and the world financial crisis of 2008) have not

affected him quite as much as the dot com bubble.

Beasley prefers to refer to himself as a Financial Consultant rather than as an investment advisor

and he has been trusted by many investors to ably advise them regarding their investment

decisions. He is currently a few months away from obtaining full qualifications to earn the title

of Financial Advisor and Investment Broker. He has gotten and refused offers to manage hedge

funds in Birmingham Alabama based on personal reasons and currently holds the role of

Consultant to several Fortune 500 companies.

Beasley helps investors who are serious about investing to realize their financial goals and has

built up an enviable reputation as “the Wall Street guy”. He is the brain behind his business

StockSpotify which he uses as a marketing tool for his investment consulting services. The

business is dedicated to providing invaluable investment consulting services to its customers. As

the name of the business suggests, StockSpotify specializes in helping stock market investors to

make solid investment choices. They help both seasoned and average investors to realize above-

average returns on their investments.

The team behind StockSpotify boasts advanced skills and qualifications in the field of finance.

Together the team of partners has over 5 decades of experience in stock market investing with

special expertise in the area of hedge fund management. Two partners have obtained world-class

credentials and qualifications in financial fields of expertise. The track record that has been built

by StockSpotify is enviable and the organization is set for exponential growth. Few other

investment professionals can boast the success rate that this team has experienced in the financial

sector. They have helped both institutional and individual investors to make above average

returns on their investments and continue to provide top notch service to all customers.

A Final WordThanks for taking the time to read my book. Hopefully I have provided you with not only food

for thought but I hope that I have convinced you of the importance of preparing yourself as an

investor. The next Black Swan event should not be totally devastating if you adhere to the advice

imparted in this book. If this book has helped you in any way, as an investor, please go ahead

and leave a review for me on Amazon. Please feel free to contact me personally to discuss your

investment options.