Black Swan Investment events are natural and man-made situations that can happen out of the blue causing investment markets to lose between 10% – 80% for a period of time. These events can reshape economies worldwide for a period of time. Some examples of Black Swan events are:
- Major Volcano Eruption (I.e. Mt. Rainier, Yellowstone)
- Tsunamis (Japan’s event or worse)
- Earthquakes (Major quake on the Pacific Coast or Japan)
- Collapse of the Greek, French or Italian economies.
- Category 5 hurricane on the Florida coast. Or at New Orleans/Texas affecting gasoline production.
- Nuclear Terrorist Attack anywhere.
- Loss of a major city from a Terrorist Attack.
- A significant Pandemic in the US (not if but when according to the CDC.)
- Loss of the gasoline pipeline from Texas to the Carolinas and Georgia.
Case Study used: After 9/11 and Hurricane Katrina
- Insurance broker segment: Down sharply
- Semi-conductors: Down
- Most other segments (other than those below): Down
Negative Beta Reactions to Black Swan Event
- Oil & gas: Smaller cap companies dramatically increased
- Utilities: Up 11.2% post-Katrina, but averaged (-14.5%) from 2000-2005
- Home improvement: Spiked
- Aerospace & defense: Spiked after 9/11
- Air Freight & Logistics: Spiked
- Biotech: Spiked
- Building Products: Spiked
- Commodity chemicals: Increased
- Construction Materials
- Gold: Increased
- Construction & Engineering: Spiked
- IT: Went up 1% After Katrina then averaged (-17.1%)
- Healthcare: Went up 6% After Katrina but then averaged (-4.7%) from 2000 – 2005