Vexty Article: Black Swans and Long Term Investments

In the midst of the global scenario of sharp falls in stocks, many people are concerned about their investments, but in the case of long-term investments, such as Private Pension plans, should we worry?

In recent weeks, we have seen the dollar exceed the peak of R$ 5.00 and the stock market depreciate more than 40%, triggering the so-called “Circuit Break[1]“, a safety mechanism that interrupts the Stock Exchange’s operations in case of sudden falls in the stocks that make up the index.

You may also have come across a new expression these days: Black Swan. Black Swans are rare, unpredictable events that possibly have a great impact on the market. What we are seeing now with COVID-19 (the new Coronavirus) is considered a Black Swan, as well as other events we have had over the years, such as September 11^th, 2001 and the Subprime crisis in 2008 (predicted by some, but not with such magnitude), for example.

Also other events reflect oscillations for the Stock Exchange, which, in my opinion, are far from being considered Black Swans for the financial market, as was the Truckers’ Strike in 2018.

In these types of events, the best indicator of nervousness, and in a certain way, panic, is the financial market, as it makes tangible in numbers the expectation of economic agents in relation to what is happening. Most of the time, there is what we call the bandwagon effect in this market, where panic is so strong that many people end up making hasty decisions, getting rid of investments and incurring in a loss that would not occur if the correct term for its maturity were awaited.

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