Riding the Waves

During the summer of 2008, Randy Wallake curled up with a book that would do a lot to change the way he and his colleagues think about their business.

Wallake is president and vice chairman of St. Paul–based life insurance firm Securian Financial Group. After he finished the book, he asked his company’s most influential executives and specialists to familiarize themselves with it. Over the last 14 months or so, he has alluded to the ideas advanced by the book in more than 100 talks inside and outside the company. “It has really had an impact,” he says.

The book is The Black Swan: The Impact of the Highly Improbable, the 2007 bestseller by New York University professor and financial trader Nassim Nicholas Taleb. The Black Swan has appeared in 31 languages and sold more than 1.5 million copies. The Times of London has called Taleb “the hottest thinker in the world.”

Taleb argues that the world’s most important events are unpredictable, that they have massive effects, that they occur more frequently as technology knits us together more closely and that the experts who failed to foresee these events invariably drum up explanations—after the fact—to make them seem as though they were predictable all along.

Taleb dubs these unpredictable big events “Black Swans.” Europeans used to think all swans were white. Then pioneers spotted black swans in Australia. Presto: This discovery invalidated centuries of recorded sightings that had led the world to believe all swans were white.

World War I, which came out of nowhere, is one of Taleb’s Black Swans. Ditto for the 1987 stock market crash, the 1998 collapse of Long-Term Capital Management and the 9/11 terrorist attacks.

Weeks after Wallake finished the book, a violent Black Swan of the highest order swooped in: the meltdown of the global financial system. The impact quickly rippled across the economy. And Taleb’s book would influence the ways Securian responded.

Bad Swans, Good Swans

Not all Black Swans are bad. The World Wide Web and Google have been beneficial, as were many scientific discoveries and medical breakthroughs. But typically, these events don’t arrive on schedule. Indeed, Taleb believes a lot of what happens in the world is messy, random happenstance—sheer chance. He finds bum predictions everywhere. He notes that IBM founder Thomas Watson once said there would be no need for more than a handful of computers.