The Chinese market opened today with a sharp -9.6% tear with no thanks to Wuhan's Coronavirus. The coronavirus is a disaster through and through. Just last week, I came across an article on disaster preparation, and it hit me: How does one prepare for a pandemic event like such?
The Black Swan
A while ago, I read The Black Swan by Nassim Taleb. For those who are unfamiliar, he made his windfall better on 1987's Black Monday. Here's an excerpt of his killings:
Nassim was a profitable trader and doing quite well, but his big killing came the day of the October 19, 1987 stock market crash. He had accumulated a significant position in near-worthless out-of-the-money Eurodollar futures puts. The Eurodollar future is a bet on the three month bank interest rate, and pays 250 per contract. But October 19, 1987 saw a move 10 times that size, $2,500 per contract as rates moved from about 7.5% to 8.5%.
Nassim was holding enough of these puts to make $35 million. This was his biggest win in the markets by far, and he attributed it to luck. It started him thinking that five years of constant work was worth less than one lucky break.
Luck is all but anything lucky. Instead, it is a statistical phenomenon. Something that happens a lot more often than you expect. New riches are minted by those who are favored by lady luck.
Favored by lady luck
I grew up with fairy tales. And in these tales, luck is described as a special ingredient prescribed to a special someone. That sounds awfully elitist. As a plebian, I hate luck.
But as I grew older (I am 33 today, woohoo!), I figured that luck is nothing but a statistical phenomenon. A wispy one while we are it.
Take my attempt at stock investment, for example. For years, I could predict the market. It had always felt like the market is too frothy. But the gains kept coming and coming. There is no stopping hen a disaster feels obvious, it never seems to happen.