Wiley.com

The Dao of Capital: Austrian Investing in a Distorted World

Mark Spitznagel, Ron Paul (Foreword by)
ISBN: 978-1-118-34703-4
368 pages
September 2013
US $29.95 Add to Cart

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September 17, 2013

The Dao of Capital: Austrian Investing in a Distorted World

NEW YORK - 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 approached, gleaned from the 150-year-old Austrian School of economics.

In THE DAO OF CAPITAL: Austrian Investing in a Distorted World (WILEY; August 2013; Hardcover & eBook; $29.95), 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 readers on a circuitous journey from the Chicago trading pits, over the coniferous boreal forests and canonical military strategists from Warring States China to Napoleonic Europe to burgeoning industrial America, to the great economic thinkers of the 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.

From identifying and exploiting 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.”

According to Spitznagel, this roundabout strategy was the source of his high returns during the financial crisis and is how he is exploiting the next major market correction that he predicts is coming soon.

“The market is vastly overvalued right now, thanks to vast monetary distortions. The current markets and economy are an illusion and a trap for investors,” said Spitznagel. “Investors need to think to and prepare for the great opportunities to come, following a likely crash, not the current ones.”

The book’s timing is prescient as the current low interest rate environment has sent yield-hungry investors down a dangerous path, ignoring the long-term ramifications of their decisions in favor of seemingly quick and easy profits. Their oversight is fueling the market forces that inevitably lead to a crash—though revealing new investment opportunities as the market returns to balance (just as wildfires allow the forest to refertilize).

Spitznagel shows why investors should build tail-hedging into their portfolios to insure against and, even more importantly, exploit precipitous drops in the market that result from quantifiable, Fed- induced cycles.

Due to these circumstances, Spitznagel notes that this scenario has helped create the comprehensive Austrian setup for today’s markets and economy, the events that experts always see as the unfortunate effects of hazardous and haphazard market forces—what have come to be routinely though erringly called black swans.