Black Swan

A black swan is an extremely small probability event that has a higher probability of occuring than normal distribution models suggest or is normally anticipated. Examples include stock market crashes, financial crises etc. Some people even believe that great investors like Buffett are black swans too, getting rich mostly due to luck.

While some aspects of the black swan concept may be contested and controversial, to investors, black swans are occurences that are usually unpredictable yet devastating. An investor can mitigate the effect of black swans by controlling how leveraged he is and by lowering the risk in his portfolio through various methods such as diversification, stoplosses etc.

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