Is There a Black Swan Coming in 2026? Here's What to Do If There Is
Black Swans Aren't as Rare as You Think
I love Nassim Taleb's term for this. The black swan.
What makes a black swan a black swan is that you just cannot imagine it happening. You cannot imagine COVID shutting down the entire world economy. You cannot imagine the entire United States financial system freezing up over mortgages. Those things are simply outside the realm of what feels possible.
Until they happen.
And here is the thing that gets me. Those two events are only about 12 years apart. That is it. Twelve years between two events that modern portfolio theory says should almost never occur.
Taleb's whole point is that these events come along with far more regularity than they should. The math behind modern portfolio theory treats black swans as extreme tail risks. Statistically rare. Practically negligible. But when you look at what actually happens in markets, you see the truth pretty quickly.
The hundred-year flood happens every ten years.
That is not a reason to panic. But it is a reason to stop pretending that the next one is a long way off, and start thinking clearly about what it means to be genuinely prepared when it arrives.
Because the investors who come out of a black swan event in a strong position are not the ones who saw it coming. Nobody sees it coming. That is the whole point. They are the ones who were already positioned correctly before it happened.
That is what we are going to talk about.
You Can't Predict the Catalyst. But You Can See the Conditions.
We have got conflict happening economically with trade. We have got potential violent conflict in multiple places in the world. Any of those things go off seriously and you are going to get the beginnings of a recession.
And when a recession starts, watch what the baby boomers do.
They are going to jump. They are going to start moving out of the market and into annuities. Here is why. When a recession begins, interest rates tend to rise. And when interest rates rise, annuity returns get a lot more attractive. An 8% or 9% annuity over your lifetime starts looking really good compared to a market that is going flat or heading down. That is a big capital rotation. And it adds fuel to an already difficult market environment.
Now, could it be something else entirely that sets this off? Absolutely. Looking for the specific catalyst is almost self-defeating. If I can figure it out, it probably is not that. The whole nature of a black swan is that it comes from the direction nobody was watching.
But you do not need to know the trigger to be prepared. You just need to look at the conditions honestly. And the conditions right now deserve your attention.
Forget Timing the Market. Focus on Price Versus Value.
Here is the question I get asked all the time. How do you build conviction and invest in a market that feels this overvalued? What happens if the market crashes and drags your entire portfolio down with it?
I think people are asking the wrong question.
Forget about the market for a second. Seriously. Stop looking at the market as the thing you are investing in. What we are actually looking at is individual businesses. And what we are looking for in any one of those businesses is a price that is significantly below the value of that business.
That is it. That is the whole game.
Price and value are two completely different things. The market sets the price. The fundamentals of the business determine the value. And those two numbers are not always close to each other. When they get far apart, that is your opportunity.
The way we make this concrete is through two tools. The Sticker Price tells you what a wonderful business is actually worth. The Margin of Safety tells you what to pay for it. And the rule is simple: we want to buy a dollar of value for fifty cents. If the Sticker Price on a business is $80, we are not buying it until we can get it for $40.
Now here is why this changes everything when markets get scary.
If we find a wonderful business trading well below its value and we buy it, and then the market crashes and takes that price down even further, that is not a problem. We would love to buy more of it at an even cheaper price. We bought it on sale. Now it is on a deeper sale.
And the opposite is just as true. When a business we own runs up to a price that is way above its value, we sell. We are not going to hold something just because the market is excited about it.
Buffett said it as cleanly as anyone ever has. Close the door. Sell into greed, buy fear. That is the whole thing. When price and value get vastly dislocated because of irrational exuberance, we sell. When they get vastly dislocated because of fear, we buy.
That is not market timing. That is just paying attention to price versus value. And it is a discipline that works in any market condition, including this one.
When Great Businesses Get Too Expensive, Cash Is the Right Answer
Here is something that surprises a lot of people.
When you follow Rule 1 correctly, you will naturally end up in cash at certain points. Not because you got scared. Because the discipline told you to sell.
When a business in your portfolio reaches a price that is massively above its value, you sell into that irrational exuberance and get out. What you are left with is cash. And that cash builds up at exactly the moment the market is most overheated. Which is precisely where you want to be.
We still own companies we believe are wonderful businesses growing at strong rates. We are staying with those. But moving out of the overpriced ones has pushed us into a significant cash position. That is not a failure. That is the system working.
Look at Berkshire. As of the most recent reporting period, they were sitting on approximately $382 billion in cash and short-term Treasuries. That is not an accident. When it is very difficult to find businesses worth buying at these prices, you hold cash, you put it into bonds, and you wait.
When fear creates the buying opportunity, you will have the capital ready. And the conviction to act on it.
Wall Street Has to Keep Swinging. You Don't.
Here is something most people do not realize about Wall Street.
A pension fund manager does not need an outside fund manager to sit in cash or bonds. He can do that himself. He does not need to pay a fee for that. So the only thing he wants those fund managers to do is be active. Stay invested. Keep moving.
Buffett puts it perfectly. I give you the money. Then I can sit in the stands and say swing, you bum. You can't stand at the plate and wait.
That is the reality of Wall Street. Those fund managers have to keep swinging or they lose the account.
I once sat next to a fund manager from a very large mutual fund company. He told me the longest they stay in any particular company is about 90 days. They have to keep moving to stay with their peer group and the index.
That short-term pressure creates the very mispricings we are looking for. The fear, the overreaction, the wonderful businesses thrown out with the bathwater during a downturn. That is our opportunity.
Because you are not a pension fund manager. Nobody is watching your quarterly numbers. Nobody can fire you for sitting in cash for two years waiting for the right business at the right price. That patience is your single biggest competitive advantage over Wall Street.
Use it.
Go an Inch Wide and a Mile Deep
Warren Buffett talks about a circle of competence. Stick to what you know. That is solid advice. But I take it further.
You do not need a circle. You need a narrow little canyon. An inch wide. And then you go a mile deep on that inch.
When I was guiding rafts in the Grand Canyon, I thought I knew nothing about investing. Turns out I was already in the cruise ship business. Six people on a raft instead of four thousand on a ship, but the same service fundamentals, the same customer relationship, the same business model. I could evaluate a cruise line because I was living that business every day on the water.
Harley-Davidson was the same thing. I had rebuilt one from scratch. I understood why people were drawn to that brand in the 1980s. Not from a report. From personal experience.
And it does not take a finance background. My daughter Danielle's first investment came from shopping at Whole Foods. She understood the business because she was a customer. That was enough to start.
Conviction comes from understanding the business deeply. That is the foundation.
The second piece is the moat. You need to know that what makes that business great is genuinely hard for competitors to copy. Understanding a business gets you in the door. The moat tells you whether it is worth owning for the long term.
Both have to be present before you put your money in.
Understanding a Business Isn't Enough. It Also Has to Be Defensible.
You can understand a business really well and still be very uncertain about its future if competitors can come in and erode everything that made it great.
That is why we use the Four M's. Every business we consider has to pass all four tests before we commit a single dollar.
Meaning
Start with businesses you already understand and are proud to own. Not just anything that looks cheap. Something that genuinely means something to you. If you cannot explain what the business does and why people keep coming back to it, move on.
Moat
This is the durable competitive advantage that protects the business from attack. Take Chipotle. The way they create high-quality, natural food at that price point is genuinely difficult to replicate. The food storage, the sourcing, the health standards across thousands of locations. After years of success, no competitor has come close to matching that model at scale. That is a moat. Without one, the business you understand today may not be worth owning tomorrow.
Management
We want honest, owner-oriented leaders who are running this business for the long term. Not mercenaries collecting a paycheck. People who think like owners because they are owners. Bad management can destroy a wonderful business. Good management protects and grows it.
Margin of Safety
This is where price and value meet. We calculate what the business is actually worth, the Sticker Price, and we only buy it when we can get it at half that price. We want a dollar of value for fifty cents. That discount is not just about getting a good deal. It is your protection if something does not go exactly as planned.
All four have to be present. That is the complete framework. And it is exactly what we teach at the Rule 1 Virtual Investing Workshop.
Here's How to Be Ready When the Fear Creates the Opportunity
Know What You Are Waiting For Before the Market Falls
Most investors watch prices fall and have no idea whether what they are seeing is a bargain or a trap. The difference between them and a Rule 1 investor is simple. We know the number we are waiting for before the crash arrives.
That number is the Sticker Price.
What the Sticker Price Actually Is
The Sticker Price is what a business is genuinely worth. Not what Mr. Market is selling it for today. Not what it was trading at last week. What it is actually worth based on the money it is going to make for its owners in the future.
To find it, we look at four things. Current earnings per share. The estimated growth rate of those earnings over the next ten years. The future price-to-earnings ratio. And the minimum rate of return we want from the investment.
Put those numbers together and you get a clear picture of what the business should be worth a decade from now. Work backwards from that and you have the Sticker Price today.
The Margin of Safety Is Your Protection
Once you have the Sticker Price, the rule is simple. We want to buy a dollar of value for fifty cents. If the Sticker Price is $80, we are not buying until we can get it for $40.
That is the Margin of Safety price. It is not just about getting a good deal. It protects you if your growth estimates turn out to be slightly off. It is the built-in cushion that keeps Rule 1 intact even when things do not go exactly as planned.
When Fear Hits, You Already Know What to Do
When the market falls and prices drop toward your Margin of Safety number, you buy. Not because you are brave. Because you already did the work. You know what the business is worth. You know what you are paying. That preparation is what turns a market crash from a catastrophe into a clearance sale.
Calculate Your Margin of Safety
Learn to Invest Like This.
Here is what you get when you join us.
Interactive sessions with me and my mentors walking you through real business analysis. Small-group coaching so you actually practice the process, not just watch it. Access to our Rule 1 Toolbox software. And ten Rule 1-approved companies to start building your own watchlist.
We do not sell anything at this workshop. We are just there to teach you.
The market is not going to wait for you to feel ready. The best time to learn this framework is before the opportunity arrives, not after.
