Know your swans: grey is not such a rare bird

A 20% virus-induced correction could be considered a “normal” event in a stockmarket riddled with risk

- Marcus Padley

There are reports calling the coronavirus a “grey swan” event. I’m not quite sure what the experts mean by that – it’s not a black swan event but not a white swan event, by the sounds of it. Or maybe it’s just an expression to say “panic but doesn’t panic”.

The expression “black swan event” derives from the old saying “a rare bird in the lands and very much like a black swan”, which was common in 16th century Europe.

It was a phrase that described the impossible. All swans were considered to be white with the phrase “black swan” epitomizing impossibility. Until, of course, the Dutch discovered them in Western Australia in 1697 and the phrase changed from meaning impossible to meaning the impossible can happen.

Black swan events illustrate the limits of theory, the bounds of prediction and the fallibility of assumption; they come as a surprise, have a major impact or consequence and are only rationalized with the benefit of hindsight. They are rare, beyond the realm of expectation and therefore not predictable nor predicted.

Christopher Columbus coming ashore was a black swan event for the indigenous population of the US, completely incalculable, unpredictable and of major impact. The attacks of 9/11 were a classic black swan event. The planes literally “came out of a clear blue sky”. The subprime mortgage collapse was a black swan event. Abnormal, not regular, unpredictable (although some obviously did predict it, as portrayed in The Big Short).