The Silicon Valley Bank meltdown shocked the world, and the ripple effects will completely transform the way business is done in many ways. Time will tell how this plays out, but the high-level learnings from “Black Swan” events such as this one are always incredible and a great time to learn and reflect.
The black swan theory or theory of black swan events is a metaphor that
describes an event that comes as a surprise, has a major effect, and is often
inappropriately rationalized after the fact with the benefit of hindsight. –
Wikipedia
Whenever “Black Swan” events happen, I remind myself of the following (simple) frameworks and philosophies that I have learned & studied over the last few years about “unexpected” events:
- “Whenever we are surprised by something, even if we admit that we made a mistake, we say, ‘Oh I’ll never make that mistake again.’ But, in fact, what you should learn when you make a mistake because you did not anticipate something is that the world is difficult to anticipate. That’s the correct lesson to learn from surprises: that the world is surprising.” – Daniel Kahneman
- “Things that have never happened before happen all the time.” – Scott Sagan, Stanford Professor
- Rare Events Are Not That Rare: One reason we’re bad at assessing and preparing for risk and random events is that we are not good at learning from the past. We mistakenly believe that because something has never happened before, it can’t happen now. We then defend our lack of planning accordingly: “That had never happened before!” – Nassim Taleb
- “Risk is what you don’t see!”: The biggest economic risk is what no one is talking about, because if no one’s talking about it, no one’s prepared for it, and if no one’s prepared for it, its damage will be amplified when it arrives,” Housel said. “Think about risk the way California thinks about earthquakes,” Housel said. “If you live in California, you know there are going to be big earthquakes in your future but you don’t know when or where . . . but you have an expectation . . . you are always prepared for it.” – Morgan Housel
In addition to these mental frameworks, I love to study history instead of reading “future forecasts from experts”. History is a great way to learn how things happened and unfolded, and you will notice that no 2 events are ever the same. Humans tend to have a bias to try to predict future events from other recent events also known as “recency bias”.
For example, how many times do you see headlines with some sort of twist on the following…. “the next 2008 crisis is happening now” OR…. “this is going to be just like the DOT COM bust!”
Always prepare for the unexpected surprises that will happen 100% of the time at an uncertain time in the future!
The 2008 financial crisis and the dot-com bust were events unique to themselves and will probably never happen in the exact same fashion ever again; although future crises may have similarities, the future is completely unknown.
Focus on controlling what you can control and always build a margin of safety around your life and your business and most importantly, always prepare for the unexpected surprises that will happen 100% of the time at an uncertain time in the future!
This column does not necessarily reflect the opinion of RealTrend’s editorial department and its owners.
To contact the author of this story:
Sam Sawyer at sam@pinnaclera.com
To contact the editor responsible for this story:
Tracey Velt at tracey@hwmedia.com
