Dirty White Swans: Could Unexpected Extreme Events Put You Out of Business?

Ever since author Nassim Taleb introduced Black Swans into our lexicon and after the devastating financial events of 2007 and 2008 supported his thesis, Corporate Risk Departments, Hedge Funds and Individuals have been searching far and wide in a Don Quixote-esque hunt for the elusive bird. But most Black Swans are just Dirty White ones. They catch us by surprise, but shouldn’t. This is due to our human bias to dismiss obvious evidence, restrict historic observation to our personal set of life experiences and refrain from hedging an identified risk believing that it probably won’t occur. This article defines six simple techniques that can help protect your business from Black Swans, from an extreme event that might take you out of business.

The purpose is to set the scene for a risk management discussion that goes beyond the off-hand excuse from risk managers when they point to "unexpected events" . Students will realise that most of what we call Black Swans, unpredictable events with massive consequences, are in reality just Dirty White Swans; entirely plausible and hedgeable events if you study history, perform basic due diligence, employ value-based hedging and listen to those highlighting dangers.