By: PanzerGrenadier We live in a world of black swans. In a nutshell, that is what Nassim Nicholas Taleb’s (NNT) book “The Black Swan: The Impact of the Highly Improbable” talks about. He shares with us how the world is more random and unpredictable than we think it is. What’s worse is that in the world of finance, financial institutions and hedge funds who make risky investments think that they are able to predict with some degree of precision about both the likelihood and impact of their investments. Current events show how misguided the financial world was in allowing their greed to blind them to the systemic risks they were putting the global financial system. What is a Black Swan? We see now (in horror when our portfolio values get hit hard) of how prescient NNT was in being able to point out the huge risks being taken by institutions such as Fannie Mae who was nationalised by the US Government. The amazing thing was that NNT himself spells out clearly that he cannot predict since the whole idea of black swans is that they are events that have the following qualities: “rarity, extreme impact, and retrospective (though not prospective) predictability.” I would not be able to do justice to summarise the key ideas in the book and would urge you to visit NNT’s website which contains reviews done by journalists. I found the review by Bloomberg to provide a quick understanding of his key ideas. Bits of his book can be found here in this Forbes article written by NNT. “The Black Swan” ranks among one of the most influential books I have ever read and the timing of my selection of this book is also serendipitous. Even as the global financial credit crisis unfolded through the dramatic freefall of global equity markets, I was turning each and every page and seeing how NNT’ ideas were being played out in real time through the scrolling red figures of major global equity indices. those who are interested in personal finance and what to make of the current global financial crisis. Read more...