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"Spitznagel has written an essential new book. Indeed, The Dao of Capital: Austrian Investing in a Distorted World might be one of the most important books of the year, or any year for that matter." --Forbes “At last, a real book by a real risk-taking practitioner. You cannot afford not to read this!” --Nassim Nicholas Taleb “Investors of all kinds will find immeasurable value in this convincing and thoroughly researched book where Mark champions the roundabout.” --Paul Tudor Jones II |
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As today's preeminent doomsday investor Mark Spitznagel describes his Daoist and roundabout investment approach, “one gains by losing and loses by gaining.” This is Austrian Investing, an archetypal, counterintuitive, and proven approach, gleaned from the 150-year-old Austrian School of economics, that is both timeless and exceedingly timely.
In The Dao of Capital, hedge fund manager and tail-hedging pioneer Mark Spitznagel—with one of the top returns on capital of the financial crisis, as well as over a career—takes us on a gripping, circuitous journey from the Chicago trading pits, over the coniferous boreal forests and canonical strategists from Warring States China to Napoleonic Europe to burgeoning industrial America, to the great economic thinkers of late 19th century Austria. We arrive at his central investment methodology of Austrian Investing, where victory comes not from waging the immediate decisive battle, but rather from the roundabout approach of seeking the intermediate positional advantage (what he calls shi), of aiming at the indirect means rather than directly at the ends. The monumental challenge is in seeing time differently, in a whole new intertemporal dimension, one that is so contrary to our wiring.
Spitznagel is the first to condense the theories of Ludwig von Mises and his Austrian School of economics into a cohesive and—as Spitznagel has shown—highly effective investment methodology. From identifying the monetary distortions and non-randomness of stock market routs (Spitznagel's bread and butter) to scorned highly-productive assets, in Ron Paul's words from the foreword, Spitznagel “brings Austrian economics from the ivory tower to the investment portfolio.” The Dao of Capital provides a rare and accessible look through the lens of one of today's great investors to discover a profound harmony with the market process—a harmony that is so essential today.
In The Dao of Capital, hedge fund manager and tail-hedging pioneer Mark Spitznagel—with one of the top returns on capital of the financial crisis, as well as over a career—takes us on a gripping, circuitous journey from the Chicago trading pits, over the coniferous boreal forests and canonical strategists from Warring States China to Napoleonic Europe to burgeoning industrial America, to the great economic thinkers of late 19th century Austria. We arrive at his central investment methodology of Austrian Investing, where victory comes not from waging the immediate decisive battle, but rather from the roundabout approach of seeking the intermediate positional advantage (what he calls shi), of aiming at the indirect means rather than directly at the ends. The monumental challenge is in seeing time differently, in a whole new intertemporal dimension, one that is so contrary to our wiring.
Spitznagel is the first to condense the theories of Ludwig von Mises and his Austrian School of economics into a cohesive and—as Spitznagel has shown—highly effective investment methodology. From identifying the monetary distortions and non-randomness of stock market routs (Spitznagel's bread and butter) to scorned highly-productive assets, in Ron Paul's words from the foreword, Spitznagel “brings Austrian economics from the ivory tower to the investment portfolio.” The Dao of Capital provides a rare and accessible look through the lens of one of today's great investors to discover a profound harmony with the market process—a harmony that is so essential today.
The Financial Times Lexicon: Austrian Economics
A school of economic thought originating in Austria in the late nineteenth century which focuses on the concept of opportunity cost. In economic theory, the term Austrian School stands for liberalism and laissez-faire-economics (where economic performance is optimised when there is limited government interference).
The Austrian School of economics has its original roots in the work of Carl Menger from the University of Vienna . References to the topic were first published in 1871. Well-known followers of Menger included Eugen von Böhm-Bawerk (1851 – 1914), Ludwig von Mises (1881 – 1973) and, perhaps most important, Friedrich A. Hayek (1899 – 1929).
Hayek, for example, strongly rejected any intervention by the state in the economy. For him, markets work perfectly in the sense that the market price balances supply and demand. A perfect market is one characterised by easy access to information, no barriers to entry and with prices controlled by all participants.
Due to the global financial crisis of 2007 and 2008, the popularity of the Austrian School of economics has experienced a boost in recent times because it had predicted, a long time ago, that too much debt – due to too low interest rates – would trigger investment bubbles followed by a crisis after these bubbles burst. For example, look at Ireland’s property bubble, which was fuelled by reckless lending by banks to property developers.
In contrast to Keynesianism, the Austrian School of thought holds that the business cycle is driven by the supply side of the economy, not demand. If interest rates are too low, we will have over-investment. This may lead to over-production, which may trigger a crisis. During the crisis, supply declines until it is once again equal to overall demand. Then a new cycle starts.
For the Austrian school, the main challenge is not inflation, but over-investment in the face of too much money, or too-low interest rates that can lead to a crisis. Too much money means that the growth of money supply is much higher than the growth of goods and services in an economy. This leads to inflation, which is an increase in the average prices of all goods because there is more money available.
This means that the right level of the interest rate, called the ‘natural rate of interest’, is crucial to prevent a crisis. This type of interest rate attracts enough investment to ensure full employment and no inflation. If the actual rate is equal to the natural rate, there is no inflation.
A school of economic thought originating in Austria in the late nineteenth century which focuses on the concept of opportunity cost. In economic theory, the term Austrian School stands for liberalism and laissez-faire-economics (where economic performance is optimised when there is limited government interference).
The Austrian School of economics has its original roots in the work of Carl Menger from the University of Vienna . References to the topic were first published in 1871. Well-known followers of Menger included Eugen von Böhm-Bawerk (1851 – 1914), Ludwig von Mises (1881 – 1973) and, perhaps most important, Friedrich A. Hayek (1899 – 1929).
Hayek, for example, strongly rejected any intervention by the state in the economy. For him, markets work perfectly in the sense that the market price balances supply and demand. A perfect market is one characterised by easy access to information, no barriers to entry and with prices controlled by all participants.
Due to the global financial crisis of 2007 and 2008, the popularity of the Austrian School of economics has experienced a boost in recent times because it had predicted, a long time ago, that too much debt – due to too low interest rates – would trigger investment bubbles followed by a crisis after these bubbles burst. For example, look at Ireland’s property bubble, which was fuelled by reckless lending by banks to property developers.
In contrast to Keynesianism, the Austrian School of thought holds that the business cycle is driven by the supply side of the economy, not demand. If interest rates are too low, we will have over-investment. This may lead to over-production, which may trigger a crisis. During the crisis, supply declines until it is once again equal to overall demand. Then a new cycle starts.
For the Austrian school, the main challenge is not inflation, but over-investment in the face of too much money, or too-low interest rates that can lead to a crisis. Too much money means that the growth of money supply is much higher than the growth of goods and services in an economy. This leads to inflation, which is an increase in the average prices of all goods because there is more money available.
This means that the right level of the interest rate, called the ‘natural rate of interest’, is crucial to prevent a crisis. This type of interest rate attracts enough investment to ensure full employment and no inflation. If the actual rate is equal to the natural rate, there is no inflation.