The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails

800 Years of Crisis

The concept of black-swanning investment portfolios is in the nascent stages of mainstream acceptance, even though the idea has been adopted by the upper echelon of the financial market.

The credit crisis, the first black swan event of the twenty-first century, makes clear that the old ideas of managing money, and limiting risk, need to evolve because the future is likely filled with even more financial calamities.

“We know we have crises every five or ten years,” Jamie Dimon, J.P. Morgan’s chairman and chief executive, said during congressional testimony in January 2010.”6 The pattern has, by some measures, existed for 800 years. Since 1980, the financial markets have repeatedly been leveled by financial crises. Each new crisis seems more intense than the one that came before. In 1982, Mexico defaulted on its bonds, sparking an international debt crisis. In 1987, the Dow Jones Industrial Average dropped 22.6 percent in one day. In 1989, the markets contended with the U.S. savings and loan crises and the Latin American debt crisis. This led to a European monetary system crisis in 1992 and 1993, and a Mexican peso crisis, requiring a $50 billion U.S. guarantee in 1994 and 1995. In 1997 and 1998, Asia experienced a financial crisis that required a $40 billion rescue organized by the International Monetary Fund. In 1998, Russia defaulted on its debt, and Long Term Capital Management, the U.S. hedge fund, nearly toppled the global markets. In 2001 and 2002, Argentina ...