“The Black Swan” is a philosophical book written by Nassim Nicholas Taleb. The first edition of “The Black Swan” was published in 2007, and it was a great commercial success for the publisher. The second expanded edition was published in 2010.
The basic premises of “The Black Swan” are connected with the unexpected life events. The book argues that our minds use various tricks to hide unexpected and rare events from us. Taleb uses the term “Black Swans” to describe such unpredictable events of human life. In lives, people need to make future plans, so they must make their plans by predicting their futures more orderly. In the same way, when people reflect back their past, it seems much more orderly than it actually was. Taleb tries to define such situations of life through his term black swan. The author illustrates the point that in life people expect all swans to be white, and it is shocking when a black swan swims by. He mentions that Black Swans drive the world more than the predictable and visible patterns around which people usually organize themselves. There are various examples of black Swans, such as the ancient European discovery of American continents, the rise of modern weaponry for war in between different countries, the rising of Eduardo Severin’s $20,000 investment in Facebook into $2 billion, the 9/11 terrorist attacks, and the great financial crisis of 2008, etc. (Taleb, 2007).
The book’s layout follows a simple logic, which is connected with literacy in the beginning portion and science and mathematics in the later portions. Part one and the beginning of part two research deeply the human psychology. The writer addresses science and business in the latter half of part two and part three. Part four of the book contains various advices to approach the world in a tolerant behavior during uncertain situations. Taleb believes that people seem to be hardwired to find various predictable patterns to understand the world instead of looking for Black Swans. The author thinks that all human being are typically forward-looking models, who try to make sense of the world by accepting the inertia and normal distributions of the earth. As a result, people expect that their future to remain within an expected range with predictable outcomes. However, Black Swan often overwhelms our expectations for continuity, and it acts like a tsunami in human life that wipes out all of our careful planning.
Taleb was born in Lebanon, in 1960, and lived among a “black swan” when his homeland was cast into the chaos of civil wars in 1975. These situations made the writer more affectionate about complicated human life. After immigrating to the United States, he worked in Wall Street, when he faced another black swan of his life through the Wall Street financial crisis. Black Monday in 1987 is the worst day in modern history when the Wall Street employees suffered the worst days of their business life. It was a drop in business that started with no clear reason Taleb’s epiphany. At that moment, he realized that various unpredictable events have far more influence in our lives than we care to admit in reality. Taleb’s arguments in “The Black Swan” are the wild outcomes of fractal geometry in which anything can happen in a night. He originally dedicates “The Black Swan” to Benoit Mandelbrot, who is considered as the godfather of fractal geometry (Taleb, 2007).
The book has admirable ambition and appealing cheek, and contains various wise observations of life, such as people attribute their success to their skills, whereas their failures to external events outside their control. Taleb analyzes the reasons of shortcomings through “The Black Swan”, and describes that lack of structure is the first reason of person’s failure. For instance, the collapse of the former Soviet Union was an incomprehensible and unlikely event that was caused by the lack of structure.
The book teaches various approaches of lives, and it advises to focus on the situations, which are unknown instead of giving attention to the situations that are known. The 2008 financial crisis situation make the point more clear. Taleb describes the situation as “The Black Swan” of 2008. The author is more interested to suggest the society some simple rules of business, which illustrates “How Not to Invest” to avoid complex situations. He implicitly blows up the status quo investment approaches, which are embraced by the mainstream Financial Infotainment and Industrial Complex. Also, he describes the interesting lives of investing career through the book “The Black Swan” (Taleb, 2007).
Financial Status of Life
Taleb criticizes society for failing to expect extreme events through “The Black swan”. He complains that Wall Street traders attend their discussions and then make stock forecasts with a rather unfruitful result. However, they do so, because it is their job and they must do it, as institutional investors always demand for the Wall Street forecasts. Thus, he suggests his readers to maintain financial stability by taking some specific future steps (Taleb, 2007).
“The Black Swan” conveys an important message to live frugally, because frugality is a great economic and personal advantage in human life. If a person knows how to maximize his/ her resources, then he/ she may be able to survive great changes of life in more effective ways. Also, frugality helps to build up personal resources.
Minimize Future Costs
The book teaches us different ways to use our own money. For instance, if a person invests his extra money in some fruitful works, then he/ she can have good benefits from the investment in the future time period. It helps to reduce the necessity of resources in the future, so it means that very few “black swans” can disrupt them in future if they invest their extra money in the present time period.
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Have a Large and Stable Emergency Fund
By reading the book, it is clear that if a person has a large amount of cash reserve for any kind of emergency situation, then he/ she can ride through the situation easily, whether it is a small or medium-sized “black swan” they can get rid of it easily. For example, if a person is suspended from the job in some critical situation, then it is possible to fight against such “black swans” through our emergency funds (Taleb, 2007).
To Assure a Good “Opportunity” Fund
Sometimes unexpected situations bring nice opportunities. In such situations, the opportunity becomes more effective, if people can manage to have the required resources by creating an “opportunity” fund. For instance, there is a large chunk of land for sale in a profitable area. Suddenly, the owner has made a nice price drop, which is quite negotiable, and then the “opportunity” fund will help to buy the property for future benefit. In short, the book advices to keep some resources at hand in order to make life more useful, and minimize what is needed in the future (Taleb, 2007).
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The Black Swan and Investing
Taleb briefly discusses the advantages of investment in “The Black Swan”. His suggestions for taking advantages of black swans are quite unusual, but it makes some sense. He advises people to put 85-90% of their investment money into something extremely stable, such as treasury notes. He admits that the other 10-15% of investment is the riskiest part, so people should be careful with that part of the investment. For instance, if a person wants to invest $10,000, then he must put $8,500 into treasury notes, which returns 2% annually and the rest $1,500 in some new organization. Thus, at the end of the year, if he/ she loses all invested money that he put in new organization, still he will have only 13.3% of loss and he will get back $8,670. On the other hand, if the person’s luck suddenly changes and the new organization investment goes in a good profit and he/ she gets 900% return on that investment, then his/ her $1,500 turns into $15,000. He will finally have $23,670 that is a 136.7% return. Basically, by demonstrating similar kinds of examples in “The Black Swan”, Taleb wants to define that there are many more black swans out there in this world than people initially believe there are, so a person should take a ride without taking a serious risk (Taleb, 2007).
From the above discussion, “The Black Swan” is a unique philosophical book that gives us knowledge about various complex situations of life and its solutions. Nassim Nicholas Taleb beautifully portraits various unpredictable events of human life and compares it with Black Swans. Although the book is connected with philosophy, still the author manages to explain the rules and regulation of life through financial calculation methods. Thus, Taleb shows the society the unpredictable side of human life and its solutions through his book “The Black Swan”.
- Taleb, N. N. (2007). The black swan. The United States, Random House publication.