The Black Swan: The Impact of the Highly Improbable

If you engage in a Black Swan-dependent activity, it is better to be part of a group.

EL DESIERTO DE LOS TÁRTAROS

Yevgenia met Nero Tulip in the lobby of the Hotel Danieli in Venice. He was a trader who lived between London and New York. At the time, traders from London went to Venice on Friday noon during the low season, just to talk to other traders (from London).

As Yevgenia and Nero stood engaged in an effortless conversation, she noticed that her husband was looking uncomfortably at them from the bar where he sat, trying to stay focused on the pontifications of one of his childhood friends. Yevgenia realized that she was going to see a bit more of Nero.

They met again in New York, first in a clandestine way. Her husband, being a philosophy professor, had too much time on his hands, so he started paying close attention to her schedule and became clingy. The dingier he got, the more stifled Yevgenia felt, which made him even dingier. She dumped him, called her lawyer who was by then expecting to hear from her, and saw more of Nero openly.

Nero had a stiff gait since he was recovering from a helicopter crash—he gets a little too arrogant after episodes of success and starts taking uncalculated physical risks, though he remains financially hyperconservative, even paranoid. He had spent months immobile in a London hospital, hardly able to read or write, trying to resist having to watch television, teasing the nurses, and waiting for his bones to heal. He can draw the ceiling with its fourteen cracks from memory, as well as the shabby white building across the street with its sixty-three windowpanes, all in need of professional cleaning.

Nero claimed that he was comfortable in Italian when he drank, so Yevgenia gave him a copy of Il deserto. Nero did not read novels—“Novels are fun to write, not read,” he claimed. So he left the book by his bedside for a while.

Nero and Yevgenia were, in a sense, like night and day. Yevgenia went to bed at dawn, working on her manuscripts at night. Nero rose at dawn, like most traders, even on weekends. He then worked for an hour on his opus, Treatise on Probability, and never touched it again after that. He had been writing it for a decade and felt rushed to finish it only when his life was threatened. Yevgenia smoked; Nero was mindful of his health, spending at least an hour a day at the gym or in the pool. Yevgenia hung around intellectuals and bohemians; Nero often felt comfortable with street-smart traders and businessmen who had never been to college and spoke with cripplingly severe Brooklyn accents. Yevgenia never understood how a classicist and a polyglot like Nero could socialize with people like that. What was worse, she had this French Fifth Republic overt disdain for money, unless disguised by an intellectual or cultural façade, and she could hardly bear these Brooklyn fellows with thick hairy fingers and gigantic bank accounts. Nero’s post-Brooklyn friends, in turn, found her snotty. (One of the effects of prosperity has been a steady migration of streetwise people from Brooklyn to Staten Island and New Jersey.)

Nero was also elitist, unbearably so, but in a different way. He separated those who could connect the dots, Brooklyn-born or not, from those who could not, regardless of their levels of sophistication and learning.

A few months later, after he was done with Yevgenia (with inordinate relief) he opened Il eserto and was sucked into it. Yevgenia had the prescience that, like her, Nero would identify with Giovanni Drogo, the main character of Il deserto. He did.

Nero, in turn, bought cases of the English (bad) translation of the book and handed copies to anyone who said a polite hello to him, including his New York doorman who could hardly speak English, let alone read it. Nero was so enthusiastic while explaining the story that the doorman got interested and Nero had to order the Spanish translation for him, El desierto de los tártaros.

Bleed or Blowup

Let us separate the world into two categories. Some people are like the turkey, exposed to a major blowup without being aware of it, while others play reverse turkey, prepared for big events that might surprise others. In some strategies and life situations, you gamble dollars to win a succession of pennies while appearing to be winning all the time. In others, you risk a succession of pennies to win dollars. In other words, you bet either that the Black Swan will happen or that it will never happen, two strategies that require completely different mind-sets.

We have seen that we (humans) have a marked preference for making a little bit of income at a time. Recall from Chapter 4 that in the summer of 1982, large American banks lost close to everything they had ever earned, and more.