I have been hearing a lot of shout outs and wassapp chats about HOW Trump winning the Election would be a black swan event which might lead to much awaited and anticipated market crash.
Now I am no expert on Black Swan book, far from it, I barely understood it to be honest.
But whatever I did understand, clearly tells me that people who are crying wolf have not even read it.
I mean Trump winning has a probability of 50% (almost) when it is this neck and neck you have to give some leeway for data errors and fair and square call it a 50-50 event.
Now as a Rule, a Black swan cannot have a 50% probability of occurrence. That is too frequent. Black swan is the impact of a highly improbable. 50% Probability cannot be termed as highly improbable. And therefore the very %age chances of Trump winning nullifies it being a rare event and so IT is not a FAT TAIL.
Secondly, as we have seen, market prices of stocks are a discounting mechanism. If Trump was as horrible as he was made out to look, the markets would have priced that info by cracking 30-40% (Indices). Try and understand what I am trying to say here. If it is a known devil, market will price it in its ticker and known devils cannot be black swan events.
The problem arises because of ILLUSION of CONTROL and business channels strong need to find a REASON for EVERY MOVE IN THE MARKET.
Till date, I have not seen any business channel with intellectual honesty to say we don’t know why this move happened. Give them 15 minutes (not even that much), and they will come up with a detailed reason and hypothesis for anything that has happened on any stock.
WB was absolutely spot on when he said,
Honesty is a Costly gift, don’t expect it from cheap people.
Besides, let us put this ILLUSION of CONTROL debate to rest. When was the last time these IDIOTS ‘predicted’ any major black swan.
I clearly remember NOT A SINGLE CHANNEL ISSUED A BUY when it was OPPORTUNITY of a lifetime to buy in 2009. The headlines read, END OF THE WORLD, BUY GOLD, KEEP CASH. RETURN OF INVESTMENT IS MORE IMPORTANT THAN RETURN ON INVESTMENT.
And I also remember, clearly the joyous, exuberant, matching T-SHIRTS with a number, that KISSING of the computer and ALL IS WELL mumbo jumbo right at the peak from where we crashed BIG.
Point is, it is an insult to a black swan if TV anchors can predict it. What you hear on TV all the time is of course already PRICED IN.
Trump win would be no different, it is going to be a knee jerk reaction and after that it will be BAU (Business as Usual)
Somebody asked me, what was that, ‘Collar Strategy to protect from Swine Flu’ blog about, if you think Trump win is not a Black swan
Again, he missed the whole point, I never said anything about Black Swan. I am interested in protecting my portfolio from a sudden increase in volatility as people will have knee jerk reaction propelled by these stupid business channels.
As I write this, it is already manifesting and my COLLAR is at WORK protecting the PF.
If I had the ability to predict black swans, i would not create collars around my PF, would rather get financially independent in one shot and write blogs from Acqualina Resort, Miami beach rather than a chimney named New Delhi.