The results of the Election have been dubbed a ‘black swan’ event. The term originates from 16th century London when it was used as a statement of impossibility. It was a common expression until 1697 when Dutch explorers discovered black swans in Western Australia – evidence that a perceived impossibility might later be disproven.
May’s decision to call a general election must have made sense at the time – the polls gave Conservatives a 21 per cent lead in mid-April. Brexit and the appointment of reality TV star Donald Trump as US president are other examples of recent unlikely outcomes. Not to mention Leicester City winning the Premier League last year!
Financier and now writer Nassim Nicholas Taleb explains that such occurrences which deviate beyond what is normally expected should be assumed to be not only possible but probable. In fact, in order to protect against catastrophic financial conclusions, investors should plan for rare events to happen.
If your portfolio is well-structured and you remember that investing is a long-term game, you should not need to act when such black swan events occur. No-one knows what the future holds and owning a highly diversified portfolio is the key tool that we have to make sure that we are prepared for whatever the markets throw at us over time.
And then while the political jostling continues over the coming weeks, you can simply ignore the financial hype. Keep calm and carry on.