The Black Swan Theory and the Importance of Diversification

The Black Swan theory was coined by economist Nassim Nicholas Taleb, and its name is a metaphor that perfectly explains it. In the 17th century, Europeans believed that all swans were white, but with the arrival of the first explorers to Australia, black swans were discovered, something that was considered highly improbable. Despite its improbability, it happened, and it changed Europeans' perception of swans. Through this metaphor, Taleb questions economic analyses made to predict the future by extrapolating the past, as at some point they will encounter an unforeseeable black swan. Thus, this theory describes events that occur unexpectedly and that no analyst had predicted or expected, because they were improbable, but they usually have significant repercussions and impact. Moreover, once that event has occurred, there is evidence that it could have been avoided, and the reason for its occurrence is sought. Although it may seem that these events are difficult to happen in today's society, where there is high accuracy in studying, analyzing, and predicting, the reality is that there are a variety of examples of "black swans" that have shaped history and its course: World War I, Hitler's rise to power, the stock market crashes of '29 and '87, the September 11 attacks, the fall of Lehman Brothers, Brexit... All of them are events that could not be prevented and had serious consequences. But with all these examples, doesn't a light bulb light up in your brain? Of course it does! The current Covid-19 pandemic is a clear example of a black swan. At the end of 2019 when some cases of pneumonia due to a new coronavirus appeared, practically no one could imagine the current global crisis. Once the virus spread and we reached a pandemic, we thought it could have been avoided, or at least minimized, if attention had been paid to the signs. There were recent outbreaks with SARS in China in 2003, bird flu, and Ebola, so currently we already had experience. Several experts also pointed out that we were not prepared for a pandemic and its possible impact. In this situation, why were we not prepared? Well, it's very simple: its probability was very low, so countries' resources were allocated to other priority issues. A black swan has serious consequences in financial markets, so they are one of the risks to face when investing. Ignoring them would be a serious mistake even if their probability is minimal. Fully protecting oneself against them is very complicated, if not impossible, since they cannot be predicted, but we can minimize their impact. For this, it is essential to have a diversified and structured portfolio, with different asset classes that offset each other. The current coronavirus has devastated stock markets and a large number of SMEs and projects, but it has also demonstrated the importance of diversification when investing and has strengthened alternative investment platforms. At Inversa, our crowdfactoring platform, the investment volume per investor has increased exponentially in recent months, and our investors currently benefit from an average return of 7.4%, which shows that the coronavirus has not negatively affected us. Additionally, within Inversa, investment in invoices with different risk and payment terms can also be diversified to minimize risk. We hope that our assets have helped some of our investors to minimize the impact of the current economic crisis. It is a harsh and current example, but it clearly demonstrates the importance of diversification in investments. Can we help you?