Black swans and markets: Crises are buying opportunities


“A Black Swan is an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme ‘impact’. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”

                                                                                            Nassim Nicholas Taleb

Black swans have huge impact on markets. In recent times, September 11 was a classic black swan, which no one saw coming. The impact on the market was devastating. The NYSE and Nasdaq remained closed until September 17th. When the markets opened the Dow crashed by 7.1 percent. For the first week after market reopening the Dow lost 14 % and S &P lost 11.1%.  Even though the impact of September 11 on sectors like Airlines was devastating, the economy was not impacted much and markets quickly bounced back.

The Global Financial Crisis of 2008 was not a black swan event even though the Lehman Brothers collapse was a big shock. But the economic impact of the global financial meltdown was huge and devastating. The recession of 2008 and 2009 was the worst after the Great Depression of 1930s and, therefore, it came to be known as the Great Recession. Globally stock markets went through devastating crashes and investors lost heavily.

Covid-19 would appear as a classic black swan to many. But according to Nicholas Taleb, the famous author of the great work ‘Black Swan’, the pandemic is not a classic Black Swan since many, including Taleb, had predicted the probability of pandemics hitting the world. But, for the vast majority, Covid-19 has been the biggest and most unexpected shock in recent times. During end March 2020 global stock markets witnessed one of the worst crashes in financial history. Many markets were frozen on lower circuits. In India Nifty crashed to 7593 and Sensex to 25993. Fear reigned supreme everywhere. The market legend Warren Buffet, who had exhorted investors to “be greedy when everyone is fearful”, was not convinced to buy. 

From April 2020 onwards, markets started to climb. The rest is history. We are presently in a ferocious bull market; many stock indices have doubled and more than doubled since the crash of March 2020.

Lessons from market crashes

The important lesson and takeaway from black swans and market crashes is that human ingenuity will find ways to overcome crises, be it financial, medical, whatever. Therefore, it makes sense to buy the fear.

Talking from my experience in the market since 1984, I have seen many crises and market crashes. The biggest lesson that I learnt is that all major crashes are buying opportunities. Since 1984 India has witnessed assassinations of two prime ministers, communal conflicts, political instability, severe droughts and floods, a devastating earthquake, a tsunami, a major Balance of Payments crisis in 1991, Kargil War, recessions and now the pandemic. The economy was impacted in varying degrees during these crises; but soon it bounced back. The markets too were impacted temporarily but quickly bounced back. The lesson? Those who bought the fear and crash laughed all the way to the bank.

The following table of Sensex highs and lows is self-explanatory.

Sensex highDateSensex lowDate
Around 53000 July 2021??

History may not repeat always. But in the stock market, history repeats!


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