To build wealth, you want to expose yourself to situations where uncertainty (unpredictability) is a positive force for you, not a negative one. You want to make bets in areas where surprises push to the upside because of positive Black Swan events.

What’s a Black Swan Event?

Nassim Nicholas Taleb explores the idea of Black Swan events in his book, The Black Swan: The Impact of the Highly Improbable.

A “Black Swan” event is a rare event of enormous consequence that can’t be predicted or calculated for. It’s an event where you can’t compute the odds of it happening. Taleb cites events like the terrorist attacks on September 11th, 2001, or the rise of the internet as Black Swans. These are events that dominate our history books, and yet there is no way to predict them.

According to Taleb, all Black Swan events have these three things in common:

• The event is unpredictable (to the observer).

• The event has widespread ramifications.

• After the event has occurred, people will say that it was explainable and predictable.

There are two kinds of Black Swan events - positive and negative. A negative Black Swan is one where the downside of the event is unbounded while the upside is capped. Positive Black Swans are just the opposite - those unpredictable, highly impactful events where the upside of the event is unlimited while the downside is capped. We’ll get into examples of these shortly.

To create wealth, you want to make bets in areas dominated by positive Black Swan events. They are areas filled with asymmetric opportunities - ones where the upside is greater than the downside.

Exposing Yourself To Positive Black Swans

Taleb gives us some ideas about how to expose ourselves to positive Black Swan events. Here’s what he recommends:

1. Identify places where unpredictability is very beneficial.

Taleb writes that there are two categories of human undertaking: ones where uncertainty is beneficial (positive Black Swans) and ones where uncertainty is harmful (negative Black Swans).

You need to be able to tell the difference between these two categories, especially if you are creating or investing in businesses. The goal is to operate in areas of positive Black Swans.

Here are some areas that Taleb identifies where positive Black Swan events dominate:

• Movies

• Publishing

• Scientific Research

• Venture Capital

Three out of these four categories are scalable industries. Movies, publishing, and venture capital are scalable because you can disconnect your input from your output.

In movies / TV, you film & edit the project once, but can then scale it to a massive number of people over the internet. And for any reason, the movie may take off and become a hit (a positive Black Swan event). The same goes for publishing a book. As Taleb writes:

You have little to lose per book and, for completely unexpected reasons, any given book might take off. The downside is small and easily controlled.

The fourth area, scientific research, is exposed to positive Black Swans because a surprise breakthrough will always be a net positive. Even if you accidentally find a cure for some other disease while trying to cure cancer, that’s a positive Black Swan event.

Example of a Black Swan Event In the Movie Business

Here’s an example of a positive Black Swan in the movie business. Arnold Schwarzenegger, in Tim Ferriss’ book, Tools of Titans, talks about the deal he made for the movie Twins (with Danny DeVito).

To get the movie made, Schwarzenegger, Ivan Reitman (the director), and DeVito agreed to waive any upfront fee for the film. Instead, they made a back-end profit-sharing deal where they would get a percentage of the movie’s profits were it to make any money.

The worse case for Schwarzenegger in making this deal is the movie flops (as movies often do), and he doesn’t get paid for the work he did. This deal caps his downside. But if the film is a hit, he’s exposed to the massive, uncapped upside.

The movie was a hit - a positive Black Swan event. It made Schwarzenegger more money than any other movie in his career.

That’s the benefit of working in areas of positive Black Swan events. These are businesses where:

You are lucky if you don’t know anything—particularly if others don’t know anything either, but aren’t aware of it. And you fare best if you know where your ignorance lies, if you are the only one looking at the unread books, so to speak. This dovetails into the “barbell” strategy of taking maximum exposure to the positive Black Swans while remaining paranoid about the negative ones. For your exposure to the positive Black Swan, you do not need to have any precise understanding of the structure of uncertainty.

As Taleb describes, in these businesses, uncertainty helps you. The upside is much more significant than the downside.

Some industries are prone to negative Black Swan events. These are areas where you face only downside risk:

• Military Service

• Catastrophic Insurance

• Homeland Security

In each case, surprises are bad & the downside is uncapped.

Learn to tell the difference between areas and businesses dominated by positive Black Swan events and those dominated by negative Black Swan events. Then operate in positive Black Swan industries.

2. Keep your mind open to all opportunities.

Taleb encourages us to avoid looking for “the precise and the local.” In other words, don’t try to predict specific Black Swan events with a particular outcome. Instead, open yourself up to let contingency play a role in your career.

For example, if you’re a writer, don’t get obsessive about writing the next best-selling book. Focus on writing many books, publishing many articles, consistently tweeting your thoughts, and iterating continuously to expose yourself to positive Black Swans in a bunch of related areas.

The best-selling book is not the goal - it’s to expose yourself to the upside of writing and publishing in as many ways as you can.

The same goes for preparing for negative Black Swans. Instead of protecting yourself from a specific negative Black Swan threat, prepare more broadly for bad things to happen. An emergency fund with 6-months worth of income will protect you if you lose your job AND if you lose your job because of a global pandemic that shatters the economy.

Prepare for the general and keep your mind open to all opportunities.

3. Seize any opportunity that looks like one.

To increase your chances of exposure to massively positive events, follow up on anything that even remotely looks like an opportunity.

Taleb says that we are exposed to far fewer opportunities than we realized. And even when we are, it’s hard to tell if it’s an opportunity. Taleb writes:

Many people do not realize that they are getting a lucky break in life when they get it. If a big publisher (or a big art dealer or a movie executive or a hotshot banker or a big thinker) suggests an appointment, cancel anything you have planned: you may never see such a window open up again. I am sometimes shocked at how little people realize that these opportunities do not grow on trees.

So, train yourself to look at life through the lens of seeking positive Black Swan opportunities. Here are some ways to do it:

• Go to dinner parties.

• Live in a big city.

• Go on a first date.

• Build a blog.

• Start a business.

• Tweet.

• Publish a book.

• Publish videos.

• Create a course.

In each case, the upside is far greater than the downside. You are inviting contingency into your life by seizing opportunities where positive Black Swans dominate. That’s how you can create wealth.

Start now.

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Nassim Nicholas. The Black Swan: The Impact of the Highly Improbable. Random House Publishing Group. Kindle Edition.

Ferriss, Timothy. Tools of Titans: The Tactics, Routines, and Habits of Billionaires, Icons, and World-Class Performers. HMH Books. Kindle Edition.