A scenario that, in a week, precipitated thousands of families becoming impoverished and credit facilities, hitherto lax, hardening and bankrupting a large number of companies that could not meet their working capital needs. The steepest drop in a session occurred on Tuesday, October 29, 1929, with a decline of 12.8%.
2. Dotcom Crisis (2000)
The massive arrival of the Internet caused many to want to get rich with the new business opportunities presented by the WWW.
The Nasdaq index was above 4,800 points at the height of the bubble. Until it was punctured and the technology stock market fell almost 80%. The market lost close to five trillion dollars.
What happened is that the growth was so explosive that there was an overvaluation of the companies. When expectations were not met, the market crashed.
3. Financial Crisis (2008)
Much like nearly 100 years earlier, by 2008 the world seemed to be in for a great time for the financial sector. There was nothing to suggest that more than a year and a half of crisis was about to come with stock market falls of the order of 50%, with bankruptcies of the largest banks on Wall Street.
This crisis spread globally, although its origin is in the American mortgage market, which is why it is also known as the subprime mortgage crisis. Before the crisis broke out, banks offered extreme credit facilities to finance the purchase of mortgages by people without resources (subprime).
This, together with a process of financial deregulation carried out in the US in previous years, made it possible to market these mortgages with low camouflaged credit quality, and led to a liquidity crisis that led to a stock market panic and a deep recession.
Some believe this is not a Black Swan, but the mere outcome of irresponsible action by banks that only saw the gains but never measured the risks. It was also the time of the Berni Madoff mega-scam.
4. COVID-19 crisis (2020)
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AFP
A pandemic like Covid-19 is almost by itself the exact definition of a Black Swan. No one expected a virus to cause the health crisis that hit the world, causing global lockdowns and closures, causing serious economic consequences.
The consequences of this global crisis have been the most important since the Second World War.
5. Black Monday (1987)
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You have to go back 36 years to locate the Black Swan that caused one of the biggest falls in the markets over the last century. On October 19, 1987, the North American Dow Jones index sank 22.6% in a single session, volatilizing almost a quarter of its market capitalization.
The report explains that “the reasons for such a sharp correction were due to overvalued assets, rising oil and high inflation, which led to massive selling by individual and institutional investors.”
The falls that followed the days after were not so bulging. Maximum cumulative falls of 28% were marked after three months. Even the Dow Jones index ended 1987 positive (2.26%).
6. Ukrainian War (2022)
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AFP
The war in Ukraine is considered a Black Swan because beyond the geopolitical tensions an invasion of Russia was not expected.
The conflict caused a sharp increase in energy and food prices, which, added to the consequences of the Covid-19 pandemic, aggravated global inflation.
7. Attack on the Twin Towers (2001)
Twin Towers
Throughout the last century, there have also been Black Swans whose origin was far from the purely economic sphere, but which caused a strong impact on the stock markets. This is what happened with the terrorist attacks of 9/11 in New York, which caused the markets to also turn red, with falls on that day of 7.1%, and a maximum accumulated close to 17% in one month.
The contagion effect caused the values of the main European indices to also open lower, highlighting the -6.6% of the Euro Stoxx. The other side of the coin was carried out by the S&P 500 VIX index, which experienced a rise of 26.6%, more than enough explanation of why it is known as the fear index.
8.Brexit (2016)
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The unexpected result of the referendum promoted by the British government, to vote for the possible exit of the country from the European Union, caused a real earthquake at a political, social and economic level. The 52% support for leaving the EU generated an initial reaction in the stock and currency markets that caused the London stock market to fall more than 7% in the subsequent session, accumulating a total fall of 14% in two days. It also caused the largest devaluation of the pound ever recorded in a single day. The falls were 10% against the dollar and 7% against the euro.
conclusions
One of the conclusions drawn from the analysis is that the Black Swans whose origin was financial, such as the Crash of 1929, the dotcom crisis in 2000 or the financial crisis of 2008, caused much more devastating effects for the markets, compared to other events with greater repercussions on a political and human level, such as the 9/11 attacks or the outbreak of the War in Ukraine, whose falls on the stock market were not so abrupt.
In addition, the effect of this type of event of financial origin acquires a much more long-term character. Stock market falls accumulated over a much longer period of time (33 months in the case of the Crash of 29 or 31 months in the 2000 dotcom crisis, compared to the two sessions of falls after Brexit or the two months in the COVID-19 crisis).
Despite the fact that these are events of great impact and that, as we can see, are repeated with some regularity over time, protecting ourselves from black swans is complicated, given their unpredictable nature. The best way to be prepared, from the point of view of investments, is to bet on diversification and advice to avoid hasty decisions in difficult times.
Source: Ambito
