The author of the Black Swan writes today in the FT ten principles for a Black Swan-proof world. Some made sense, some not quite. He writes,
Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it.
I believe ‘nobody’ understands them because of their complex nature, but it doesn’t mean they are incapable of understanding them. First, there are no clear rules about transparency and regulations are low. Having the right regulation would not only allow the more effective existence of these hedging products, more would also be more aware of their significance in the markets.
Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require.
Getting involved in the stock market is an answer to meeting targets for financial stability. Without it, I’m not sure if there is any good alternative that provide a wide variety of earnings opportunity. The issue here is, for recessions such as one we have now, there’s very few investments that actually yield positive or at least as high as what many aim for. Also, speaking of retirement, that’s precisely why advisors and other experts are advocating a smaller allocation of retirement funds in equities and more on the safer government securities.