Loading the player...

What is a 'Black Swan'

A black swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict. Black swan events are typically random and unexpected.


The term was popularized by Nassim Nicholas Taleb, a finance professor, writer, and former Wall Street trader.

The idea of a black swan event was pioneered by the finance professional turned writer Nassim Nicholas Taleb after the results of the 2008 financial crisis. Taleb argued that black swan events are impossible to predict yet have catastrophic ramifications. Therefore, it is important for people to always assume a black swan event is a possibility, whatever it may be, and to plan accordingly. He also used the 2008 financial crisis and the idea of black swan events to point out that if a broken system is allowed to fail, it actually strengthens it against the catastrophe of future black swan events.

Taleb states that a black swan event depends on the observer. For example, what may be a black swan surprise for a turkey is not a black swan surprise to its butcher; hence the objective should be to "avoid being the turkey" by identifying areas of vulnerability in order to "turn the Black Swans white".

Taleb spent 21 years on Wall Street as a quant trader, developing the computer models for financial institutions. Since that time, he has written a long-form essay broken into three books: The Black Swan: The Impact of the Highly Improbable, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, and Antifragile: Things That Gain from Disorder. He has been a distinguished professor of risk engineering at NYU's School of Engineering and written over 45 peer-reviewed papers.

Examples of Past Black Swan Events

The financial crash of the U.S. housing market during the 2008 crisis is one of the most recent and well-known black swan events as of 2017. The effect of the crash was catastrophic and global, and only a few outliers were able to predict it happening.

Also in 2008, Zimbabwe had the worst case of hyperinflation in the 21st century with a peak inflation rate of more than 79.6 billion percent. An inflation level of that amount is nearly impossible to predict and can easily ruin a country financially.

The dot-com bubble of 2001 is another black swan event that has similarities to the 2008 financial crisis. America was enjoying rapid economic growth and increases in private wealth before the economy catastrophically collapsed. Since the Internet was at its infancy in terms of commercial use, various investment funds were investing in technology companies with inflated valuations and no market traction. When these companies folded, the funds were hit hard, and the downside risk was passed onto the investors. The digital frontier was new and, therefore, it was nearly impossible to predict the collapse.

As another example, the previously successful hedge fund, Long Term Capital Management (LTCM), was driven into the ground in 1998 as a result of the ripple effect caused by the Russian government's debt default, something the company's computer models could not have predicted.

  1. Grey Swan

    A grey swan is an event that is possible and known, and is potentially ...
  2. Black Market

    Economic activity that takes place outside government-sanctioned ...
  3. Black Box Model

    A black box model is a system using inputs and outputs to create ...
  4. Black Thursday

    The name given to Thursday, Oct. 24, 1929, when the Dow Jones ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest ...
  6. Black Wednesday

    The day when the British government was forced to withdraw the ...
Related Articles
  1. Investing

    Don't Freak Out Over Black Swans; Be Prepared

    Could 2016 be a big year for black swans? Who knows? Here's what black swans are, how they can devastate the unprepared, and how the prepared can emerge unscathed.
  2. Insights

    Investopedia Readers Search for Black Swans in the Election

    As people wake up to the stunning 2016 presidential election result, here's what our readers are searching.
  3. Insights

    The Mechanics Of The Black Market

    Black markets will continue to exist as long as we have regulations and taxes. Discover how they work.
  4. Insights

    Black Swans Pose a Bigger Risk to Markets in 2017

    North Korea Nuclear Risk: Barclays sees 13 major events that could disrupt the markets this year
  5. Investing

    Can the Market Rally Continue for Another 10 Years?

    Stocks are always at risk of crashing simply because that is the nature of the market.
  6. Investing

    Can You Earn Money in Stocks?

    Stock ownership can build a lifetime of prosperity, but prospective investors need to avoid a host of common pitfalls.
  7. Investing

    October: The Month Of Market Crashes?

    In the finance world, October is a month to be feared, but is it justified?
  8. Investing

    3 Often Overlooked Areas of Financial Risk

    Here are three areas of risk many successful executives often overlook.
  9. Investing

    Defining the 3 types of investments

    Investments are expected to produce income or profit. They can be broken down into three basic groups: ownership, lending and cash equivalents.
  10. Insights

    SKEW Index Suggests a Market Downturn is Possible

    The CBOE SKEW Index is at record highs. Does that mean a crash is coming?
  1. How can value investors benefit from investing in the metals and mining sector?

    Find out how to benefit when investing in precious metals sector, and understand how gold can help hedge against currency, ... Read Answer >>
  2. What are common strategies traders implement when identifying a Bullish Homing Pigeon?

    Learn more about bullish homing pigeon patterns and which strategies candlestick traders can employ to take advantage of ... Read Answer >>
  3. What caused the Stock Market Crash of 1929 that lead to the Great Depression?

    Find out what led to the stock market crash of 1929, which in turn led to the Great Depression, sparking a nearly 90% loss ... Read Answer >>
  4. What are some historic examples of hyperinflation?

    Learn how skyrocketing prices can result in an economy spiraling into hyperinflation, as happened in Germany, Zimbabwe and ... Read Answer >>
Hot Definitions
  1. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  2. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
Trading Center