On the Lookout for Black Swans
Bloomberg Businessweek US|August 01, 2022
Investors are getting attuned to the risk of market disasters. Is protection worth the cost?
Pat Regnier
On the Lookout for Black Swans

An increasingly popular sales pitch on Wall Street goes like this: If you’ve insured your home against some disaster, shouldn’t you do the same for your investment portfolio? In the case of a house or apartment, the danger would be fire, flooding, or perhaps a devastating storm. In the financial markets, it might be a spike in volatility and a rapid decline in prices that wipes out months or years of gains.

For investors of all stripes, from the most august institution to the scrappiest day trader, the current maelstrom of sustained inflation, never-ending pandemic, war, rapidly rising interest rates, swooning tech stocks, and crypto collapse—what economic historian Adam Tooze calls a poly crisis—feels like the equivalent of a Category 5 hurricane. So it’s no surprise the pitch is working. Everyone, it seems, is looking for a way to ride out the storm in one piece.

There’s nothing new about guarding against unlikely but catastrophic losses. The practice is sometimes called tail-risk hedging, a reference to the skinny tail on the far side of a bell curve distribution of outcomes, where really bad things happen. It’s also known as “black swan” investing, a riffon an argument by the writer and investor Nassim Taleb: Just as Europeans assumed there were no black swans until an explorer spotted one in Australia, investors have a habit of assuming a crisis won’t happen until one does.

This story is from the August 01, 2022 edition of Bloomberg Businessweek US.

Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.

This story is from the August 01, 2022 edition of Bloomberg Businessweek US.

Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.

MORE STORIES FROM BLOOMBERG BUSINESSWEEK USView All
Instagram's Founders Say It's Time for a New Social App
Bloomberg Businessweek US

Instagram's Founders Say It's Time for a New Social App

The rise of AI and the fall of Twitter could create opportunities for upstarts

time-read
4 mins  |
March 13, 2023
Running in Circles
Bloomberg Businessweek US

Running in Circles

A subscription running shoe program aims to fight footwear waste

time-read
3 mins  |
March 20 - 27, 2023
What I Learned Working at a Hawaiien Mega-Resort
Bloomberg Businessweek US

What I Learned Working at a Hawaiien Mega-Resort

Nine wild secrets from the staff at Turtle Bay, who have to manage everyone from haughty honeymooners to go-go-dancing golfers.

time-read
10 mins  |
March 20 - 27, 2023
How Noma Will Blossom In Kyoto
Bloomberg Businessweek US

How Noma Will Blossom In Kyoto

The best restaurant in the world just began its second pop-up in Japan. Here's what's cooking

time-read
3 mins  |
March 20 - 27, 2023
The Last-Mover Problem
Bloomberg Businessweek US

The Last-Mover Problem

A startup called Sennder is trying to bring an extremely tech-resistant industry into the age of apps

time-read
10+ mins  |
March 20 - 27, 2023
Tick Tock, TikTok
Bloomberg Businessweek US

Tick Tock, TikTok

The US thinks the Chinese-owned social media app is a major national security risk. TikTok is running out of ways to avoid a ban

time-read
10+ mins  |
March 20 - 27, 2023
Cleaner Clothing Dye, Made From Bacteria
Bloomberg Businessweek US

Cleaner Clothing Dye, Made From Bacteria

A UK company produces colors with less water than conventional methods and no toxic chemicals

time-read
3 mins  |
March 20 - 27, 2023
Pumping Heat in Hamburg
Bloomberg Businessweek US

Pumping Heat in Hamburg

The German port city plans to store hot water underground and bring it up to heat homes in the winter

time-read
3 mins  |
March 20 - 27, 2023
Sustainability: Calamari's Climate Edge
Bloomberg Businessweek US

Sustainability: Calamari's Climate Edge

Squid's ability to flourish in warmer waters makes it fitting for a diet for the changing environment

time-read
4 mins  |
March 20 - 27, 2023
New Money, New Problems
Bloomberg Businessweek US

New Money, New Problems

In Naples, an influx of wealthy is displacing out-of-towners lower-income workers

time-read
4 mins  |
March 20 - 27, 2023