The title of this post comes from an excerpt of Nassim Nicholas Taleb's excellent book, The Black Swan, which explores the role of highly improbable events in shaping our lives more definitively than recurring, predictable events tend to do.
Taleb uses it to refer to a phenomenon he witnessed firsthand during the outbreak of Civil War along religious lines in Lebanon in the 1980s. Those who believed the war would be over in a matter of days packed a light suitcase and headed to countries in the West to wait out the blip. It turned out the blip lasted 17 years, and those who expected a temporary situation were inexplicably blind to the greatest change of their adult lives.
Taleb seemed to suggest that by middle age, our anchoring bias toward lived experience has taken root to create a persuasive self-delusion.
This is how it will be because this is what I have known as normal until now.
Therefore, this is how it will be forever.
So any deviation from what I know must be temporary until it reverts to my expectation.
He observes the same phenomenon in refugees from any civil disruption to their concept of normal, and makes the case that Cuban refugees who expected Castro to be a one-week wonder were in a similar (balsa?) boat as his Lebanese family, friends and acquaintances.
All of this begs the question of whether our financial well-being is confined to similarly ignorant thinking. Because we invest based on our experience, going so far as creating elaborate Monte Carlo simulations that use past data as a basis for predicting future behavior of our portfolios, we are victims of our own lack of imagination.
I've already seen evidence of my faulty assumptions starting to crumble in the face of COVID.
Bias: Cash-flowing real estate is recession proof. Everyone needs a place to live, guaranteeing the viability of being a landlord.
Reality: Legislators have already intervened to keep renters in their homes without paying rent, potentially leaving landlords underwater.
I recently called an agent about a multifamily unit that had been listed on the MLS that very day. She seemed quite confident that the place would go above asking price. Then she informed me that of 4 tenants, 3 were delinquent on paying rent.
Her assumption flies in the face of current realities. No lender will assume that kind of risk right now, with local and state legislators poised to pass additional anti-eviction legislation in the midst of a pandemic.
Once you start to go down this path, there are many other ways to conceive of additional Rumsfeldian unknown unknowns:
- American exceptionalism at home and abroad has been and will continue to be a constant.
- Ditto American economic power, and the dollar as the world's reserve currency of choice.
- The market always goes up.
- Fascism as a viable political movement has been banished from existence.
- The religious or cultural minority I belong to or originate from has always been welcome in my current country of residence.
It's hard to conceive of situations beyond one's personal experience. But learning to do so, and learning to hedge your bets accordingly, might just offset the type of blindness that results in exile or worse.