Coronavirus – a black swan event?

When the COVID-19 pandemic struck, the severity of its impact on global societies and economies was shocking. Yet critics are insisting that the repercussions could (and should) have been foreseen. Does this make it a ‘black swan’ event?

Originally coined by financial theorist and writer Nassim Nicholas Taleb, the term ‘black swan’ has come to denote any event that:

  • Is extremely rare
  • Has a severe impact
  • Is unpredictable (although some may claim in hindsight that it could have been predicted).

Historic black swans

Examples of black swans from history include the Spanish flu outbreak (1918), Wall Street Crash (1929), ‘Black Monday’ (1987), the terrorist attacks on the World Trade Center (2001), the SARS outbreak (2003) and, more recently, the global financial crisis (2008).

Black swan – or not?

While it may seem a textbook case on the surface, some are arguing that COVID-19 does not constitute a black swan event. Severe impact? Undoubtedly. Rare? Perhaps. But unpredictable? Maybe not.

History shows us that significant outbreaks of infectious diseases do happen. What’s more, Bill Gates, George W. Bush, Barack Obama – and Taleb himself – have all previously issued dire warnings about what could happen if we failed to prepare for future pandemics. Can we really say, then, that the coronavirus pandemic was completely unpredictable?

The COVID difference?

Those who say it is a black swan event have pointed to the unique brutality and speed with which the virus spread around the world and hit financial markets. In the words of one financial commentator: “It has been incredibly fast-paced, faster than ’29, faster than ’87. The speed and ferocity has been utterly breathtaking.”

Even so, Taleb himself suggests that coronavirus does not fit his description of a black swan event. Yes, it has had a severe impact on the global economy and people’s lives. But there are also multiple examples of serious global outbreaks from the 21st century alone – Ebola, SARS and the H1N1 influenza pandemic all spring to mind.

Weathering the storm

Black swan event or not, you can rely on us for advice and guidance on weathering any storms that lie ahead.

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The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.

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