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The Black Swan and Your Portfolio

Posted By Lineweaver Financial Group
March 12, 2020 Category: Black Swan, Portfolio,

Earlier in the year, we talked about the backdrop being favorable as we entered 2020. However, we noted that 2020 would be like every other year in that it would include unpredictable or surprise events. It didn’t take long for that to materialize. The Coronavirus is the black swan event for 2020.   You hear the term “black swan” often on the news, or when the pundits talk about the financial markets, but what, exactly, do people mean when they talk about a black swan? A Black Swan Event is one that is completely unexpected and cannot be predicted. It also has significant consequences. A black swan event can have a tremendous effect, positive or negative, on societies, economies, financial markets and of course on investment portfolios. The term Black Swan originates from the belief that all swans were white because these were the only ones ever seen or accounted for. However, around 1700, black swans were discovered in Australia. So, this unexpected, unpredictable event in (scientific) history profoundly changed zoology. When it comes to stock markets, the main black swan effect is increased volatility. This is not just due to the actual effect, but the psychological effect of something completely unexpected happening on market sentiment.  With these events, often market dynamics can change substantially, and, as we saw this time, very quickly. In the week ending February 28th, the Coronavirus outbreak drove stocks to their worst weekly loss s