The Mabul, Black Swans, And Traveling Through Kentucky

Last week we read Parshat Noach, a sedra chock-full of lessons, including moral responsibility, resilience, renewal, and the power of individual righteousness even in a corrupt world. There is also a financial lesson about risk that is relevant to all frum families. The Mabul, or Flood, was a once in history event, but should serve as a reminder that large and devastating catastrophes do occur.

In modern times, these types of rare, unpredictable occurrences are known as “Black Swan” events. Statistically they are referred to as a “tail risk,” which means an extreme, unexpected loss due to events that lie far outside normal expectations. Even though the probability of the exact same type of Black Swan occurring again is unlikely, there are various types of these catastrophic events that have occurred in the financial markets over the past few decades. Some of these include:

• Oil Embargo and 1970s energy crisis: The sudden oil embargo imposed by OPEC in 1973 shocked the global economy, causing oil prices to quadruple leading to a global recession. The market sell-off began in October 1973 and its impact lasted well into 1974. During this time the S&P 500 lost 48% of its value.
• Black Monday: On October 19, 1987, the Dow Jones Industrial Average experienced its largest single-day percentage decline in history, falling 22.6%. This crash was amplified by new computer-driven trading strategies that accelerated selling. The Dow lost nearly 23% in a single day.
• Dot-com Bubble Burst: The late 1990s saw a massive influx of investment into the tech sector. However, in the year 2000, speculation around the financial stability of all these new internet-based companies caused the bubble to burst and many internet companies to collapse, which wiped out trillions in market value. The NASDAQ, which primarily tracks technology companies, lost a staggering 80% of its value from its peak in March 2000 to its trough in October 2002.
• September 11 Attacks: On 9/11, the terrorist attacks on the World Trade Center and the Pentagon triggered a halt to the U.S. financial system, with markets closing for several days. Upon reopening, the NYSE and NASDAQ saw a panic sell-off, and markets lost over $1.4 trillion in value within a week.
• Global Financial Crisis: The 2008-2009 financial crisis was caused by the collapse of the U.S. housing market due to risky subprime mortgages. This caused a domino effect throughout the global financial system. It led to the failure of many respected financial institutions like Lehman Brothers. The S&P 500 lost nearly 57% from its October 2007 peak to its March 2009 low. The crisis wiped out more than $10 trillion in global stock value. The real estate market took years to recover.
• COVID-19 Pandemic: In 2020, the Covid pandemic triggered unprecedented economic shutdowns around the world, causing a supply chain and demand shock that led to a rapid market sell-off. The S&P 500 fell over 30% from February to March 2020, one of the fastest declines into a bear market in history.

• Health-related disasters: A sudden major illness or injury like a critical diagnosis, a debilitating long-term illness, or a serious accident, can disrupt your financial life even if you have health insurance. Unexpected and extensive medical bills can wipe out a person's savings or exhaust their paid time off and disability insurance, and a long recovery period may lead to unemployment.

• Unexpected legal events: Falling victim to fraud or identity theft can rob someone of their savings and assets. This could be through a complex online scheme, a fake investment fund, or the manipulation of a vulnerable, elderly family member by a dishonest individual.

• Employment-related shocks: A rare event could prevent someone from continuing work in their field. For example, a sudden loss of eyesight for an artist or a rare hand tremor for a surgeon could end their career overnight, rendering their unique skills and earning potential obsolete. It may not be health related. Further, the broad adoption of Artificial Intelligence (AI), has made professionals in a variety of fields nervous about their career trajectory.
• Startup failures. For entrepreneurs, a personal Black Swan can present as their business struggles manifesting at the exact moment a larger economic downturn takes place. This can devalue their business, potentially put them out of business and wipe out their net worth.
• Natural disasters: Many Jewish Press readers are unfortunately familiar with the impact of natural disasters on their lives. In 2012, Hurricane Sandy uprooted many families, causing financial devastation due to the destruction of their homes, personal possessions, and the disruption of their business. Many homeowners were underinsured for this truly unpredictable event.
• Relational breakdowns: While divorce itself isn't a Black Swan event, a catastrophic outcome that defies normal expectations could qualify. For example, a hidden gambling addiction, previously unknown to a spouse, could reveal massive debt that fundamentally reorients the entire divorce settlement. Another example is the loss of a primary income earner. The sudden death or disability of a spouse is a personal tragedy with severe financial repercussions. This is especially true if that person was the primary or sole breadwinner, and the surviving partner is left to care for the family with no savings and an insufficient insurance payout.

It also transported me back to the time of Noach, who very publicly went against the norms of that time. He spent 120 years building a structure the size of a cruise ship on his front lawn, while lecturing his neighbors to be better people. Noach then filled the boat with countless animals to prepare for a large flood that was going to wipe out the rest of the world. Think about Noach’s gumption to go against societal norms and instead trust Hashem’s word implicitly.

Readers can learn a lot about how to handle Black Swan events from the story of Noach. Noach prepared for more than a century, building the Ark and storing food and animals on board. This is similar to folks buying proper insurance to mitigate all the aforementioned risks, diversifying their assets in case of unfavorable markets, and maintaining a meaningful cash cushion to minimize disruption to one’s life.

However, the truth is that some events are too seismic to plan for in advance. During these situations, we learn the ultimate lesson from Noach, which is to “…Walk with G-d” (Bereishit 6:9). Despite what was going on around him, Noach and his family listened to Hashem’s direction and turned to Him for guidance. Ultimately, the Mabul subsided, Hashem promised that something like that would not occur again, and the story of mankind continues.

Unfortunately, life throws everyone seemingly insurmountable challenges. We learn from Noach that we must do our due diligence to properly prepare, but ultimately, we can only overcome these events, financial or otherwise, by turning to Hashem to guide us.