Black Swan Events: Staying the Course

The Black Swan theory was chronicled by Nassim Nicholas Taleb in his popular 2007 book “The Black Swan”. Taleb writes about extremely rare or highly improbable events that have a major market impact, positive or negative, which impact global markets.

The current Coronavirus scare originating in Wuhan, China has investors spooked. At the time of this writing, oil is down almost $10/barrel from its high a not even a week prior.

Impact of SARS

Looking back at SARS as our model, we saw global declines in GDP and equities as a result. Global GDP in real dollars declined nearly $40 billion, and the MSCI index took a 10% hit.

Don’t panic. Buy.

If past history tells us anything, looking at the world index above shows a fairly quick rebound in global markets. Yes, certain sectors like energy and materials will get hit harder and may take a little longer to rebound. But for long-term investors, opportunities like these which destabilize the market allow for attractive entry points.

A few months ago I wrote an article on the objective value presenting itself in Canadian energy stocks. There is no denying energy is cheap, and perhaps a ‘green’ consciousness will drive the nail slowly into the proverbial coffin. However, we can’t just do away with energy, and the current Coronavirus impact on the markets presents an even more attractive entry into an already decimated sector.

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