The World Changes Fast
The term Black Swan was popularized by scholar and statistician Nassim Taleb. It refers to rare and unpredictable events that have massive and often catastrophic impacts. Black Swan events are often rationalized after the fact as if they should have been clear and expected, but the unpredictable nature of them is what makes a Black Swan event so fascinating. How can people miss the warning signs on such significantly altering events? It is the fact that a true Black Swan event exists outside of our understanding of what is even possible — the same way everyone always thought swans were white until a variety of black swan was first seen by European explorers in Australia in 1657.
I am fascinated by the Black Swan framework, although one critique I do have is that once you become familiar with the concept, it’s easy to see Black Swans on the horizon wherever you look, even (and most often) when they are not actually there. Because generally, even in the face of uncertainty, the world marches on. It’s easy to predict calamity and collapse, and at any given moment in time (especially these days) there are a dozen things you can point to, but life usually continues on as normal, relatively speaking.
When I was an investment advisor, I used to have a line I would say to people in meetings meant to underscore the inherent risk in the stock market and to warn my clients about the potential for volatility and losses. I think many investment advisors use the same basic line, which is something like, “You know, someone could sneeze in the Middle East and all of a sudden oil is $200 a barrel and the stock market is crashing.” This is the Butterfly Effect, to use another flying creature metaphor.
But look what has happened over the past few years, at least with regard to global events and the stock market: a worldwide pandemic, a major war in Europe, political unrest around the world, tariff uncertainty, and, yes, more than just sneezes in the Middle East. Yet still, the stock market has continued to rise to one all-time peak after another. I would still be proceeding with caution right now as an investor due to all of those variables and others, but the point is, you could have said at almost any moment over the past five-plus years that the stock market was about to crash, and if you had believed so and sold out, you would have missed out on some major investment gains.
A key piece of the Black Swan framework is that these unpredictable and generally unforeseen events actually shape the world much more than long-term, slow-moving trends. Think of the pandemic, the global financial crisis in 2008, and September 11th as particularly notable examples — each one of those experiences permanently altered politics, the economy, and our general ways of living, and none of them was predicted outside of very small subsets of isolated analysts and prognosticators.
There are other examples, too. In a more systems-based way, the sudden advent of the internet in everyday life, or more recently, the rapid adoption of AI technology, have also permanently altered the world, to say the least. I’ve written a lot about AI lately, so I won’t go too far down that road today, but the ability for deep learning models to gather, synthesize, and analyze information and use it to perform professional tasks virtually instantaneously is probably one of the true Black Swans of our time, and maybe of all human history (how lucky we are to live in such interesting times!).
In the business world, Black Swan events can change the outlook for a business or an industry almost overnight. I was thinking about this past week when connecting my phone to my car so that the map directions could come through the screen on the car instead of just through the phone. Do you remember when people would buy an actual GPS device for their car and physically attach it to the windshield or dashboard? These were from companies like TomTom and Garmin. Well, both of those companies are still around, actually, so they adapted reasonably well, but the consumer market for separate GPS devices in cars is basically non-existent now that everyone has free map apps on their phones that can flow through to their vehicles with a cord or through Bluetooth.
Many titans of international business have been brought down by Black Swan–esque changes to the consumer landscape. Kodak, for example, was founded in 1892 and was the dominant player in photography and film. By 1975, it was worth $31 billion. But after the rise of digital photography and the online sharing of photos, the company ended up bankrupt by 2012. I wrote last week about Encyclopaedia Britannica, another company caught off guard by shifts in technology and consumer behavior. Blockbuster is another high-profile example, a company that actually had a chance to acquire Netflix for $50 million in 2000 but did not. Netflix today is worth over $500 billion, and Blockbuster ended up bankrupt (although there is still one Blockbuster video rental store in existence today — it is located in Bend, Oregon).
Nokia, Toys “R” Us, Borders, MySpace — the list goes on and on of companies that were taken under by changing circumstances that were beyond the ability of the leadership of each business to comprehend, and so they did not react strategically or aggressively to maintain themselves.
Another quick aside: Yahoo had a chance to buy Google in 1998 for $1 million and passed. In 2002, they had a chance to buy it again for $3 billion and did not. Today Google (now known corporately as Alphabet Inc.) is worth almost $3 trillion (yes, trillion with a “t”). Yahoo also had a chance to buy Facebook in 2006, but could not get the deal to work.
On the other hand, there are plenty of examples out there of companies that have adapted their way through to greater and greater heights. Microsoft launched the personal computer revolution, for example, and it would have been easy to rest on that success in a PC-dominated world. But instead, they invested in programs like Office and Windows, cloud computing, and more, while acquiring companies like LinkedIn (which is still owned by Microsoft to this day), GitHub, and others, including being an early investor in OpenAI. Microsoft is also highly involved in gaming and other computer-related industries that are far beyond their original mindset and models of being a PC-oriented company. That is why they are now worth over $3 trillion.
What Industries Are Safe from Black Swans?
I don’t truly think there are any industries that are immune from unexpected upheaval. An article about community banking in the age of AI could (and likely will, someday, when I have time to write it) take up gallons of digital ink. But there is no business line or activity that I can think of that is truly risk-free from significant, unexpected change. You could say housing, possibly, as people will always need places to live. But the Black Swan event in that line of business could be the unexpected construction boom of millions of new units nationwide or, on a more local level, thousands of new units in a community that suddenly oversaturates the market with available apartments. This would be great for tenants, but potentially bad for landlords and property owners. Political or legislative changes, too, could come at the local, state, or federal level that could alter the state of renting, which could throw things into turmoil.
This is not to pick on real estate investors — I just know there are a lot who read these articles, so I like to touch on the topic when possible. The point is this: the unexpected is always out there. The world adapts, yes, but there are also a million variables at play in any industry or business line that can come together in ways that make the old ways of doing things suddenly not viable.
For investors, business leaders, and even communities, the lesson of the Black Swan is this: don’t assume the future will look like the past. Markets, industries, and even entire ways of life can shift in an instant. The winners are rarely those who saw the exact shock coming, but those who positioned themselves flexibly enough to survive and even take advantage of it.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com.