Hi Friend,
Whenever we see some event (that we didn't expect or never even imagined that would be possible) happen, we generally write it off on bad or good luck (depending on whether the outcome is Positive or Negative).
These low probability but High Impact Events are termed as "Black Swan" events by Mr. Nassim Nicholas Taleb , who authored a book with the same title.
A black swan event has the following characteristics that make it so.
Rarity :
The black swan is a rare event. It lies outside the realm of common experience and nothing in our past experience points to its possibility. A black swan is that million-to-one chance that statisticians said would never happen because it was a million-to-one chance.
Extreme impact :
When the black swan strikes, it has a massive impact. It is two of the world's tallest buildings being destroyed, it is a stock market crash that wipes out billions, it is a tsunami or earthquake over a major city.
Not only is the qualitative nature of the black swan outside our regular experience (meaning we can't see it coming), so is its sheer size — a single event can dominate over all other factors.
Just because we don't know or just because we don't think they are going to happen doesn't mean that they won't happen. Can we stop death by "Feeling" that I am “not going to die” ?
If we can figure what those events might be in our own life, we can either reduce or mitigate the impact of Risk ( in case of negative events ) and take advantage of these events ( in case of positive events ).
If we can figure what those events might be in our own life, we can either reduce or mitigate the impact of Risk ( in case of negative events ) and take advantage of these events ( in case of positive events ).
Two such events may be,
Buying in-adequate insurance or No insurance at all :
General tendency is not to buy Insurance at all or buy inadequately by fixing some "arbitrary premium" in our minds and then buying a policy the "arbitrary premium" can buy without giving any consideration to our actual need.
This happens for the simple reason that while buying insurance we see the money going out of our pocket immediately ( which obviously is painful ) and we don't see the benefit as clearly .
We don't generally see ourselves dying quite soon or falling on ill health quite often, do we ?
But, imagine if the event indeed happens what could be the impact on ours as well as on the Lives of people dependent on us?
Blind faith in Real Estate as a safe investment option :
How many people around us accept the probability that real estate as an investment option is on the downward slope ?
What happens if indeed the government squeezes black money out as we have been discussing for a long time now, especially considering the fact that more than 90% of the net worth of majority of people is in real estate ?
There may be plenty of such events.
The first point in handling such events properly is to accept that such events are possible, by being on the look out for those events and plan accordingly.
If we can't really foresee the extent or impact of such events, we better leave some "Margin of Safety".
Example: Buying a higher insurance cover than we think is necessary ( It would be really helpful, as it also counters our natural tendency to "buy less" because of the “pain” mentioned above ).
The alternative route is to ignore such events and blame everybody else (including God) for “ Our Bad Luck ".
Please read the following link to find out more about a " Black Swan " ,
Thank you,
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