Dao of Capital

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 of enhancing investment returns. In addition to hedge fund investing, Spitznagel's twenty-year investment career has ranged from independent pit trader at the Chicago Board of Trade to proprietary trading head at Morgan Stanley. He also owns and operates Idyll Farms in northern Michigan.

"Spitznagel has written an essential new book. Indeed, might be one of the most important books of the year, or any year for that matter."—Forbes"The Dao of Capital: Austrian Investing In A Distorted World by Mark Spitznagel (Wiley, 2013) is a beautifully crafted book, one I can recommend to readers of all political/economic persuasions... it is impossible not to be shaped by its carefully presented history and logic."—Seeking Alpha"There is no shortage of market bears who take a grim view of the stock market. But Mr. Spitznagel has gained credibility in the investment world by predicting two market routs in the past decade, first in 2000 and then in 2008. Still, Mr. Spitznagel's approach is unusual for a money manager."—The New York Times"A fascinating and radical break from the investment dogma of the past several decades"—Fortune"While The Dao of Capital makes for demanding reading, it repays the effort as a heady historical and intellectual feast."—Barron's"Spitznagel could simply have written that investors need patience and must avoid the temptation of the quick profit; that building a successful strategy, and life, involves a longer-term approach foregoing instant gratification; that establishing a solid foundation while appearing not to create progress puts you in position for much greater success later on. He did not do that. Instead, he takes you on a tour of history and nature that illuminates these long held truths. In the end his message is simple, but by providing the historical underpinnings he brings them to life in a much more vibrant way."—Futures MagazineAmong the "12 Books That Every Investor Should Read... deeply informative and will leave an impact on you."—Business Insider"A memoir and free market manifesto... that bring(s) theoretical concepts down to the practical level."—Institutional Investor"I applaud the book as a look into the thinking process of a great investor, especially one that has a clear and consistent understanding of the market process, the dangers of government intervention, and the benefits of Austrian economics."—Ludwig von Mises Institute

• Foreword xviiIntroduction xxiiiChapter One: The Daoist SageKlipp’s Paradox 1The Old Master 3The Soft and Weak Vanquish the Hard and Strong 6Into the Pit 9The Privileges of a Trader 12Robinson Crusoe in the Bond Pit 15Fishing in “McElligot’s Pool” 18Enter the Austrians: A von Karajan Moment 18A State of Rest 21Guiding into Emptiness 23Moving On 26The Wisdom of the Sages 29Chapter Two: The Forest in the PineconeThe Roundabout and the Logic of Growth 33The Forest and the Tree 36The Slow Seedling 39Wildfire and Resource Reallocation 41The Conifer Effect 43A Logic of Growth 49Chapter Three: SHIThe Intertemporal Strategy 51The Dao of Sun Wu 56Shi and the Crossbow 58Li—The Direct Path 59Shi and Li at the Weiqi Board 60A Common Thread, from East to West 64An Attack of Misunderstanding 68On War—An Indirect Strategy 70Shi, Ziel, Mittel, und Zweck 74Chapter Four: The Seen and the ForeseenThe Roots of the Austrian Tradition 75That Which Must Be Foreseen 78At the Viennese Crossroads Between East and West 85The Teleology of Baer’s Butterfly 88Menger Establishes the Austrian School 89Tutor to the Prince 93Methodenstreit 97Österreichische Schule 101Chapter Five: UMWEGThe Roundabout Path of the Unternehmer 103Postulating the “Positive” 105Produktionsumweg 108Böhm-Bawerk, the Bourgeois Marx 113Faustmann’s Forest Economy 116Rings of Capital 122Henry Ford: The Roundabout Unternehmer 125The Roundabout of Life 134Chapter Six: Time PreferenceOvercoming That Humanness About Us 139“Radical” Böhm-Bawerk and the Psychology of Time Preference 145The Curious Case of Phineas Gage 149The Shi and Li Brain 151The Subjectivity of Time 153The Trade-Off of an Addict 158No Zeal for Ziel on Wall Street 161Adapting to the Intertemporal 164Chapter Seven: “The Market is a Process” 167The Man Who Predicted the Great Depression 169Fleeing the Nazis 173Human Action 175Unternehmer in the Land of the Nibelungen 179Genuine Change Is Afoot in Nibelungenland—A Market-Induced Drop in Interest Rates 187Distortion Comes to Nibelungenland—The Central Bank Lowers Rates 190Time Inconsistency and the Term Structure 194The Day of Reckoning Comes to Nibelungenland 198The Austrian View 199The Market Process Prevails 201Chapter Eight: HomeostasisSeeking Balance in the Midst of Distortion 203The Teleology of the Market 205The Yellowstone Effect 207Lessons from the Distorted Forest 209Market Cybernetics 213How Things “Go Right” 216Spontaneous Order 217Distortion 219The Sand Pile Effect 220Distortion’s Message: “Do Nothing” 222The Shi of Capital 223Chapter Nine: Austrian Investing I: The Eagle And The SwanExploiting Distortion with Misesian Tools 227Homeostasis en force 229Witness to the Distortion 231An Initial Misesian Investment Strategy 236The Eagle and the Swan 240Case Study: Prototypical Tail Hedging 244The Ziel and the Zweck: Central Bank Hedging 248The Roundabout Investor 251Chapter Ten: Austrian Investing II: SiegfriedExploiting the Böhm-Bawerkian Roundabout 253Siegfried, the Dragon Slayer 255Case Study: Buying the Siegfrieds 263Value Investing: Austrian Investing’s Estranged Heir 269A Zweck Finally Attained 275Epilogue: The SISU Of The Boreal Forest 277The World Learns Sisu from the Victorious Finns 278Sisu—Of Character and Character-Building 284Notes 293Acknowledgments 309About the Author 311Index 313