The 1 in 60 large black swan: Of course, it's in retrospect so nobody a-priori (i.e. in advance) can predict which will be that large black swan.
If the success of the person's black swan strategy is ultimately dependent on number of positions held (because predicting which individual company/stock will be a swan is not really likely, so a basket has to be chosen), then at bottom the person seems to be saying that he found one really good black swan in 60 positions. So what would be the chance of again finding another such swan in the next 60 picks? I claim it could just as easily be no such stock will be found as one stock will be found. Maybe he could have two. Less probable, I assume would be that he would find three or more that stand out. (based on the 1 in 60 in this first set) The possibility of none though prevails in my mind.
By the way I look at these things (and that's just me), the person couldn't and shouldn't put 1/4 of his portfolio into one or a few such picks if he's using swan expectations as a basic strategy. Rather, the person should have more picks to up the likelihood of finding more swans. That is, instead of about 60 picks at $16K each, more like 120 @ $8K or 180 @ $5.3K. This will give the person - maybe- more shots at more swans. Perhaps expecting two for 120 positions, or maybe 3 or 4 - or maybe just one. Less of a likelihood of finding none at all (less likelihood of zero with 120 picks than if "only" 60 picks were made). Of course some assumptions in here, such that 120 picks are available with the same criteria that the poster used for the 60.
From what I see so far, for the individual investor to be tied up with 60 or 120 stocks for just this one strategy, doesn't seem practical or worthwhile. Jmo of course. |
