How Does a Black Swan Event Affect the Stock Market?

October 25, 20225 min read
How Does a Black Swan Event Affect the Stock Market?
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

• A black swan is a rare and unexpected event that has potentially severe consequences for the stock market.

• Black swan events tend to rewrite the philosophies underpinning the aspects of the market they impact.

• The most recent occurrence of a black swan event was the emergence of the COVID-19 pandemic and the global quarantines that were imposed in response to it. 

Swans native to the Northern Hemisphere have white plumage. Because of this fact, the birth of a black swan north of the Equator is looked upon as a rare and unexpected event. Similarly, the financial markets consider a previously inconceivable occurrence to be a “black swan” phenomenon.

Such events tend to shift paradigms, disrupt the markets, and recalibrate expectations on Wall Street. Within that, however, the ultimate effect of a black swan event on an individual investor can be either positive or negative. The result is largely dependent upon the asset classes dominating an investor’s portfolio, the positions they hold in those investments — and just plain luck.  

The Term’s Origins

Initially coined by finance professor, writer, and former Wall Street trader Nassim Nicholas Taleb, the concept was put forth in his 2001 book, Fooled by Randomness. In it, Taleb discusses the hidden role chance plays in life in general and the markets in particular. 

His follow-up volume, The Black Swan, was written in 2007 and published just prior to the financial crisis of 2008.  In that book, Taleb posited the idea that randomness and uncertainty can present significant challenges to investors. 

According to Taleb, the defining elements of a black swan event are:

• Unpredictability

• Severe, widespread consequences

• Post-event predictability claims (hindsight bias)

In recognition of the unpredictable nature of the market, Taleb suggested that a focus on portfolio robustness and resilience could have a mitigating effect on the consequences of a black swan event. 

The seemingly prescient timing of The Black Swan reinforced the validity of the theorem, which, in fairness, had been put forth by financial experts before the book was written. The overriding idea is that rather than trying to predict the unpredictable, a smart approach is to expect the unexpected. 

In other words, the best approach to the potential occurrences of black swan events is to embrace investing strategies that are not dependent on a continuously favorable market to deliver desirable outcomes.

Black Swans and the Stock Market

Black swan events tend to rewrite the philosophies underpinning the aspects of the market they impact.  A good example of this was the aftermath of the emergence of eCommerce. 

Long standing retail behemoths such as J.C. Penney (NYSE:JCP) and Sears (OTCMKTS: SHLDQ) found the ground beneath their feet crumbling as the paradigm upon which their business models depended was disrupted. However, what was bad for those companies was great for new Internet-based sellers such as eBay (NASDAQ: EBAY) and Amazon (NASDAQ: AMZN). The shift also worked out for brick and mortar retailers such as Best Buy (NYSE:BBY), which successfully incorporated the new paradigm into the way they do business. 

In other words, black swan events aren’t bad for everyone. 

Similarly, an investor holding a long position in a stock negatively affected by a black swan event will likely suffer. Meanwhile, an investor holding a short position in that same stock will profit.

Black Swan Examples

The most recent occurrence of a black swan event was the emergence of the COVID-19 pandemic and the global quarantines that were imposed in response to it. 

Markets and economies around the world were disrupted. 

However, within all of that disruption, companies like Zoom (NASDAQ:ZM) found new traction. Shares in the company were trading at $66.08 on October 18, 2019. The price peaked at $559 on October 16, 2020. Share prices then retreated once quarantines were lifted. As of this writing (October 24, 2022), Zoom shares are trading for $79.78. 

Black swans can give and they can take away. The key is to be positioned to benefit from the unpredictable. Other historical black swan events include the crash of 2000, the 9/11 attacks in 2001, the global financial crisis of 2008 and Brexit in 2020. In each instance, well-positioned investors realized gains despite the market’s setbacks. 

Predicting the Unpredictable

Seasoned investors know adverse occurrences can emerge without notice. They also know keeping an eye on current events can provide clues. The buildup to the Russian invasion of Ukraine for example, forewarned disruptions in the supplies of oil and natural gas, as sanctions against Russia — a major producer of those commodities — were implemented. 

Political issues such as the Russian invasion, worldwide health concerns such as the Coronavirus pandemic, and cyber attacks against major cloud services providers all hold the potential to trigger black swan events. Scanning the news for developments such as those give investors time to reorient their holdings to avoid the downsides of such instances—and potentially benefit from them.

Investors with long time horizons would do well to consider resilience as well as profit potential when populating their portfolios. Companies that tend to suffer the most during black swan events are well-established blue-chip firms that lack agility. Meanwhile, startups can often maneuver around black swans more effectively.

Varying the mix of asset classes held within a portfolio (diversification) can potentially offer a degree protection as well. Fixed-price assets such as bonds, certificates of deposit and treasury notes tend to respond to market volatility more favorably than publicly traded equities. 

Black Swans and Alternative Investments

Alternative investments can also be useful tools for portfolio diversification. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, and collectibles are among asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer good potential for diversification. 

These asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  Yieldstreet opens a number of investment strategies that were formerly available only to institutional investors and the top one percent of earners to all investors. 

The company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

In Summary

Black swans happen. They can emerge suddenly and their consequences can be devastating. However, as we have illustrated, black swan events can be beneficial as well. As unpredictable as they can be, there are instances in which careful observation of current events can provide clues. There really is no such thing as plug, play and walk away when it comes to investing. Vigilance can return dividends.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Synapse Financial Technologies, Inc. and its affiliates (collectively, “Synapse”) as well as certain third-party financial services partners. Synapse is not a bank and is not affiliated with Yieldstreet. Bank accounts are established by Evolve Bank & Trust. Brokerage accounts and cash management programs are provided through Synapse Brokerage LLC (“Synapse Brokerage”), an SEC-registered broker-dealer and member of FINRA and SIPC. Additional information about Synapse Brokerage can be found on FINRA’s BrokerCheck. By participating in a Synapse cash management program, you acknowledge receipt of and accept Synapse’s Terms of Service, Privacy Policy, and the applicable disclosures and agreements available in Synapse’s Disclosure Library.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure