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The Dao of Capital: Austrian Investing in a Distorted World

Book Description

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.

Table of Contents

  1. Cover
  2. Contents
  3. Title
  4. Copyright
  5. Dedication
  6. Foreword
  7. Introduction
  8. Chapter One: The Daoist Sage
    1. The Old Master
    2. The Soft and Weak Vanquish the Hard and Strong
    3. Into the Pit
    4. The Privileges of a Trader
    5. Robinson Crusoe in the Bond Pit
    6. Fishing in “McElligot’s Pool”
    7. Enter the Austrians: A von Karajan Moment
    8. A State of Rest
    9. Guiding into Emptiness . . .
    10. Moving On
    11. The Wisdom of the Sages
  9. Chapter Two: The Forest in the Pinecone
    1. The Forest and the Tree
    2. The Slow Seedling
    3. Wildfire and Resource Reallocation
    4. The Conifer Effect
    5. A Logic of Growth
  10. Chapter Three: Shi
    1. The Dao of Sun Wu
    2. Shi and the Crossbow
    3. Li—The Direct Path
    4. Shi and Li at the Weiqi Board
    5. A Common Thread, from East to West
    6. An Attack of Misunderstanding
    7. On War—An Indirect Strategy
    8. Shi, Ziel, Mittel, und Zweck
  11. Chapter Four: The Seen and the Foreseen
    1. That Which Must Be Foreseen
    2. At the Viennese Crossroads Between East and West
    3. The Teleology of Baer’s Butterfly
    4. Menger Establishes the Austrian School
    5. Tutor to the Prince
    6. Methodenstreit
    7. Österreichische Schule
  12. Chapter Five: Umweg
    1. Postulating the “Positive”
    2. Produktionsumweg
    3. Böhm-Bawerk, the Bourgeois Marx
    4. Faustmann’s Forest Economy
    5. Rings of Capital
    6. Henry Ford: The Roundabout Unternehmer
    7. The Roundabout of Life
  13. Chapter Six: Time Preference
    1. “Radical” Böhm-Bawerk and the Psychology of Time Preference
    2. The Curious Case of Phineas Gage
    3. The Shi and Li Brain
    4. The Subjectivity of Time
    5. The Trade-Off of an Addict
    6. No Zeal for Ziel on Wall Street
    7. Adapting to the Intertemporal
  14. Chapter Seven: “The Market Is a Process”
    1. The Man Who Predicted the Great Depression
    2. Fleeing the Nazis
    3. Human Action
    4. Unternehmer in the Land of the Nibelungen
    5. Genuine Change Is Afoot in Nibelungenland—A Market-Induced Drop in Interest Rates
    6. Distortion Comes to Nibelungenland—The Central Bank Lowers Rates
    7. Time Inconsistency and the Term Structure
    8. The Day of Reckoning Comes to Nibelungenland
    9. The Austrian View
    10. The Market Process Prevails
  15. Chapter Eight: Homeostasis
    1. The Teleology of the Market
    2. The Yellowstone Effect
    3. Lessons from the Distorted Forest
    4. Market Cybernetics
    5. How Things “Go Right”
    6. Spontaneous Order
    7. Distortion
    8. The Sand Pile Effect
    9. Distortion’s Message: “Do Nothing”
    10. The Shi of Capital
  16. Chapter Nine: Austrian Investing I: The Eagle and the Swan
    1. Homeostasis en force
    2. Witness to the Distortion
    3. An Initial Misesian Investment Strategy
    4. The Eagle and the Swan
    5. Case Study: Prototypical Tail Hedging
    6. The Ziel and the Zweck: Central Bank Hedging
    7. The Roundabout Investor
  17. Chapter Ten: Austrian Investing II: Siegfried
    1. Siegfried, the Dragon Slayer
    2. Case Study: Buying the Siegfrieds
    3. Value Investing: Austrian Investing’s Estranged Heir
    4. A Zweck Finally Attained
  18. Epilogue
  19. Acknowledgments
  20. About the Author
  21. Index