How to Avoid Black Swans. By David Booth.

When it comes to investing, a big obstacle many people face is the fear of catastrophe. If you invest in a stock, there’s always the possibility that the value may drop to zero. In fact, we used to have a wall in the office lunchroom that was covered with stock certificates from liquidated companies. Most of those businesses likely had good ideas and solid plans. After all, they had reached a level of success that allowed them to go public. And yet, eventually, each stock certificate was worth only the paper it was printed on.

People have different ways of thinking about financial risk. Some refer to black swan events. The term, which was popularized by Nassim Nicholas Taleb’s 2007 book, refers to unforeseen events that have a big impact on things like stocks or the market. In 2023, to take one recent example, the stock of Silicon Valley Bank went from $284 to $0.90 in less than a month. If someone held only that stock, they might have called what they experienced a black swan…