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Black Swan or Grey Rhino

12th May 2020

“It’s an unforeseen problem,”…

“It came out of nowhere”.

These were the words President Trump used to describe the new coronavirus. The market crash that accompanied the crisis was a similar surprise.

It has been described as the Black Swan of 2020, a Black Swan is the term used to describe an event that comes as a complete surprise and has potentially severe consequences. It comes from the observation that European explorers, when in Australia, saw black swans for the first time. They had only ever seen white swans.

In his book, “Black Swan” published in 2007 Nassim Nicholas Taleb popularised the term, just before all hell broke loose on the financial markets. Black Swans can only be seen with hindsight, and therefore they are often used as a convenient excuse. “We didn’t see that coming” is often said by politicians or fund managers when admitting their failure to spot any warning signs.

“Expect the unexpected.” “Be prepared” “contingency planning.” These are all phrases that we are familiar with. We all take out insurance for events that we hope will never happen.

So I don’t buy the Black Swan argument. If we are looking for a metaphor, I love the idea of the grey rhino. Michelle Wucker writes in her book, “The Gray Rhino”, that a grey rhino is a highly probable, high impact, yet neglected event. Grey rhinos are not random surprises, but occur after a series of warning signs and visible evidence.

I love rhinos. They are my favourite animal. The reasons for that are probably worthy of another article. I have a picture of a rhino on the wall of my office, amongst other items that remind me of this incredible creature.

Before a rhino charges it stomps around a bit, snorting and getting angrier. It is giving you plenty of opportunity to act, take action and get out of the way. Believe me, you want to get out of the way. Once this two-tonne beauty gets going, it is very difficult to stop and the damage could be irreparable.

Unstoppable but avoidable

So why am I talking about this? What has this got to do with you or your finances?

Throughout our lives, we are constantly faced with grey rhinos. There will be another global pandemic in the future. How can you prepare yourself for it? Could this be by ensuring you have enough savings to fall back on to get you through the difficult times? Is your investment portfolio aligned with your goals and your appetite for risk? Can you still do all the things that you want to in life if markets tumble? What have you done to ensure that your family will be protected in the event of death or illness?

This list is not exhaustive but just some of the questions that a financial planner can help you answer.

So my advice is to pay attention to the grey Rhino. Look to head off the things that we can see in front of us. The alternative is to spend our time, looking back for black swans.

If I was to come face to face with a rhino. I’d want a plan.

If you want to get ready and build that plan, please get in touch.

Damien Rylett
CEO

CII

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