The Dao of Capital Austrian Investing in a Distorted World

by Spitznagel, Mark; Paul, Ron

• ISBN13: 9781118347034
• ISBN10: 111834703X
• Edition: 1st
• Format: Hardcover
• Copyright: 2013-09-03
• Publisher: Wiley

Summary

Ancient Chinese philosophy meets venerable Austrian economics in a hedge fund managers modern-day approach to investing. Hedge fund investor and tail-hedging pioneer Mark Spitznagel describes his unique investment methodology, weaving two-thousand-year-old Daoist philosophy into century-old Austrian economics to form a rigorous, entrepreneurial- cum -value approach that is both timeless and particularly applicable today. Considered todays principal doomsday investor, Spitznagel's focus on what he calls the markets natural homeostatic processes actually runs very contrary to doomsayers and free market critics. From an old pit-trading sage to the conifers of the vast boreal forests, Spitznagel reveals his central shi strategy, where gaining future advantage trumps the decisive victory, and where time takes on a whole new dimension-not "long term versus short term", but rather an appreciation for the intertemporal future. Spitznagel presents three central tenets of The Dao of Capital , drawn from the Three Treasures of Daoist philosophy: Patience and tolerance-to prepare for and fully exploit intertemporal opportunities through time Nonaggression and humility-to go where others shun Economy-of means, thought and action, to thus limit vulnerabilities and exposures With a sharp Austrian focus on the entrepreneurial functioning of the market, deference for its natural process, and contrarian bias toward government intervention-driven imbalances and distortions, The Dao of Capital and its Austrian investing methodology provide a profound harmony with the market process-a harmony that is so essential today.

Author Biography

MARK SPITZNAGEL is the founder and president of Universa Investments, an investment advisor that specializes in equity tail-hedging—or profiting from extreme stock market losses as a means to enhancing investment returns. In addition to hedge fund investing, Spitznagel’s 20-year investment career has ranged from independent pit trader at the Chicago Board of Trade to proprietary trading head at Morgan Stanley. Spitznagel also owns and operates Idyll Farms in northern Michigan.

Spitznagel pledges all personal profits from the sale of this book to charity.

Table of Contents

Foreword

Introduction

Chapter One: The Daoist Sage
Klipp’s Paradox

The Old Master

The Soft and Weak Vanquish the Hard and Strong

Into the Pit

The Privileges of a Trader

Robinson Crusoe in the Bond Pit

Fishing in ‘McElligot’s Pool’

Enter the Austrians: A von Karajan Moment

A State of Rest

Guiding into emptiness...

Moving On

The Wisdom of the Sages

Chapter Two: The Forest in the Pinecone
The Roundabout and the Logic of Growth

The Forest and the Tree

The Slow Seedling

Wildfire and Resource Reallocation

The Conifer Effect

A Logic of Growth

Chapter Three: Shi
The Intertemporal Strategy

The Dao of Sun Wu

Shi and the Crossbow

Li - The Direct Path

Shi and Li at the Weiqi Board

A Common Thread, from East to West

An Attack of Misunderstanding

On War - An Indirect Strategy

Shi, Ziel, Mittel, und Zweck

Chapter Four: The Seen and the Foreseen
The Roots of the Austrian Tradition

That Which Must Be Foreseen

At the Viennese Crossroads between East and West

The Teleology of Baer’s Butterfly

Menger Establishes the Austrian School

Tutor to the Prince

Methodenstreit

Österreichische Schule

Chapter Five: Umweg
The Roundabout Path of the Unternehmer

Postulating the “Positive”

Produktionsumweg

Böhm-Bawerk, the Bourgeois Marx

Faustmann’s Forest Economy

Rings of Capital

Henry Ford: The Roundabout Unternehmer

The Roundabout of Life

Chapter Six: Time Preference
Overcoming That Humanness about Us

“Radical” Böhm-Bawerk and the Psychology of Time Preference

The Curious Case of Phineas Gage

The Shi and Li Brain

The Subjectivity of Time

The Tradeoff of an Addict

No Zeal for Ziel on Wall Street

Adapting to the Intertemporal

Chapter Seven: “The Market Is a Process”

The Man Who Predicted the Great Depression

Fleeing the Nazis

Human Action

Unternehmer in the Land of the Nibelungen

Genuine Change Is Afoot in Nibelungenland—A Market-Induced Drop in Interest Rates

Distortion Comes to Nibelungenland—The Central Bank Lowers Rates

Time Inconsistency and the Term Structure

The Day of Reckoning Comes to Nibelungenland

The Austrian View

The Market Process Prevails

Chapter Eight: Homeostasis
Seeking Balance in the Midst of Distortion

The Teleology of the Market

The Yellowstone Effect

Lessons from the Distorted Forest

Market Cybernetics

How Things ‘Go Right’

Spontaneous Order

Distortion

The Sand Pile Effect

Distortion’s Message: ‘Do Nothing’

The Shi of Capital

Chapter Nine: Austrian Investing I: The Eagle and the Swan
Exploiting Distortion By Way of the Roundabout

Homeostasis en force

Enter the Distortion

An Initial Misesian Investment Strategy

The Eagle and the Swan

The Ziel and the Zweck: “Tail” Hedging

Case Study: Prototypical Tail Hedging

The Roundabout Investor

Chapter Ten: Austrian Investing II: Siegfried
Exploiting False Prices By Way of the Roundabout

Case Study: Buying the Siegfrieds

Value Investing, Austrian Investing’s Estranged Offspring

A Zweck Attained

Epilogue

Notes

Acknowledgments

About the Author

Index