WaPo: Anticipating the Next Black Swan

My latest Washington Post column is out in the Sunday Business section.

Regular readers will recognize some of the behavioral and cyclical elements, but overall, its the first time I have combined these together all in one piece:

“Emergency planning is what we do before an emergency — not during one. Being proactive, rather than reactive, allows you to avoid the emotional mistakes many people make during unexpected events. That is why you look for the emergency exits before takeoff, not when the wings fall off the plane.

The best way to do this is to have a plan in place. Ideally, you design this when you are objective, unemotional and calmly contemplative.

Three factors should persuade you to this conclusion: First, these “black swan” events are surprisingly common. The so-called 100-year floods come along far more often.

Second, history teaches us that markets wobble then resume their prior trend. Major investment changes during this wobble are ill-advised.

Third, you should have an exit strategy in place for any asset you hold, regardless of what is happening across the world. In our asset management business, we call this having a “stock prenup”: We know what will cause us to divorce any position in advance (regardless of its relationship with the pool boy).”

Check out the entire piece here.


Anticipating (versus reacting to) the next black swan
Barry Ritholtz
Washington Post Saturday, April 2, 3:04 PM

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