Why The Black Swan

About 250 years ago David Hume presented the Problem of Induction - No matter how many times the same event has been observed in the past, is it ever proof that it will continue to be the same in the future? The answer is no.

To illustrate this point the example of the black swan is commonly cited. For centuries it was considered scientific fact that all swans were white. After all, millions had been seen and they were all white. When the black swan was eventually discovered in australia, it was instant and absolute proof that all swans are NOT white. No matter how many millions of white swans were used to "prove" that all swans are white, it only takes one black swan to prove they are not.

Hume's point was that past observations guide our beliefs but past observation does not make our beliefs true. Just because we have only seen white swans does not prove that there are no black swans. This is one of the most important and least understood concepts for successful investing.

It's what you know that isn't so that causes problems. Investors tend to rely on what has happened in the past when making decisions about what will happen in the future even though Hume has proven beyond doubt that this is an unreliable method.

This type thinking is pervasive and causes peculiar actions in the markets. It also creates opportunities for wealth creation and accumulation.

What is needed is a discipline that recognizes that black swans may exist even though they have not yet been seen. A discipline that reacts to what IS rather than what WAS. A discipline that eliminates whatever is not helping achieve the goal whenever and for whatever reason that may occur. A discipline used by CSA Wealth Management.

CSA Wealth Management, LLC. 729 Country Place Road . Axton, VA 24054