Sunday, June 24, 2012

Black Swans Red Kangaroos and Tasmanian Devils

The greatest fear of any equity investor is a sudden unexpected collapse in the stock market, sometimes known as a "Black Swan" event. No need to fear now because a few weeks ago Horizons Exchange Traded Funds launched two Exchange Traded Funds based on Black Swan basics. The basics are found in the Nassim Nicholas Taleb 2007 book entitled, “The Black Swan: the impact of the highly improbable” In his book, Mr. Taleb offers lots of examples that impacted the investment world, including start of the two world wars, the market crash in 1987 and the terrorist attack on Sep. 11, 2001. More recent events include the meltdown of the financial system in late-2008 and the tsunami/earthquake that struck Japan last year.

Lets us see now – last Thursday June 21, 2012 the S&P/TSX Composite Index dropped 351.points or 3 per cent and the Horizons Universa Canadian Black Swan ETF (HUT) closed at $9.950 down 2.45% on a brisk volume of 2500 shares.

It seems the black swan hype began in Europe when people were convinced that all swans were white, a belief that was confirmed by empirical evidence at the time. The sighting of a black swan when Australia was first settled by Europeans was a surprise. It also confirmed that one single observation can invalidate a general belief coming from the sighting of millions of white swans.

The reality is that swans are the largest members of the duck family and the Black Swan is native to Australia just like the Koala, the Tasmanian Devil and the Red Kangaroo. I would think the greatest investor fear would be a Tasmanian Devil event and I am sure the folks at Horizon are all over this. I can see it now the Horizon Devil Event ETF symbol HELL

1 comment:

Anonymous said...

great to see that you have sense of humour during these uncertain market twists