Mark Spitznagel

Mark Spitznagel
Born	Mark William Spitz-Nagel (1971-03-05) March 5, 1971 Ann Arbor, Michigan
Nationality	American
Occupation(s)	Hedge Fund Manager (Founder & Chief Investment Officer, Universa Investments L.P.)
Political party	Libertarian Republican (Senior Economic Advisor, Rand Paul 2016 Republican Presidential campaign)
Spouse	Amy Spitznagel
Academic career
School or tradition	Austrian School of Economics
Alma mater	New York University, Georgetown University, Kalamazoo College
Influences	Frédéric Bastiat, Mahatma Gandhi, Ludwig von Mises
Contributions	“Roundabout investing”, The Dao of Capital (Wiley 2013)

Mark Spitznagel (born March 5, 1971) is an American investor, derivatives trader, author, and farmer. Spitznagel is known for his über-bearish “Austrian”-based stock market investing and pioneering “tail-hedging,” and most notoriously for his hugely profitable billion dollar derivatives bet on the stock market crash of 2008, as well as for having allegedly caused the stock market crash of 2010. He is considered “one of Wall Street’s most bearish” as well as “biggest and boldest investors.”

Spitznagel is the founder, owner, and Chief Investment Officer of the multi-billion dollar hedge fund management company Universa Investments, L.P., based in Miami, Florida. Spitznagel reportedly has large Chinese and Middle Eastern sovereign wealth funds among his investment partners, and he has since closed his funds to new investors. Prior to hedge fund manager, Spitznagel has been an independent pit-trader at the Chicago Board of Trade and the head of equity options in a secretive proprietary trading division of Morgan Stanley in New York (until they requested that he sign a stringent “noncompete” agreement). Spitznagel has a graduate degree in Mathematics from New York University and undergraduate from Kalamazoo College in Michigan.

Spitznagel built a large farm in Michigan, Idyll Farms, that pastures dairy goats and produces award-winning artisanal chèvre. He is the author of the 2013 book The Dao of Capital, called by Forbes magazine “one of the most important books of the year, or any year for that matter.”

Spitznagel is Senior Economic Advisor to the 2016 Republican Presidential campaign of U.S. Senator Rand Paul.

Financial crisis

Spitznagel’s hedge fund Universa “made one of the biggest profits on Wall Street during the 2008 financial crisis” (according to CNBC), scoring returns of over 100% as the Standard & Poor’s 500-stock index lost over a third of its value, and making him “a fortune” according to The Wall Street Journal. Despite being “one of Wall Street’s most bearish investors” (and even “the world’s most bearish investor”), Spitznagel has “produced consistent gains since then, including a 30 percent return” in 2013 and 10 percent in 2014 (and has “been up every year since 2008”), according to The New York Times.

Though “Spitznagel’s strategy stems from his skepticism toward government efforts to revive the economy,” he has still “profited strongly” as central banks drove stock prices higher. Spitznagel is nonetheless typically “content with descriptions that his fund had small losses each year as he wagered against the market,” and claims he specifically targets very “lumpy returns” (what Forbes has called “a string of mediocre results interrupted occasionally by spectacular years”) which “ultimately keep away competitors.”

The Wall Street Journal alleged that a large purchase of put options by Spitznagel in the minutes leading up to the 2010 Flash Crash (when the Dow lost over 9% of its value during the day) was among its primary triggers (and for which Spitznagel was subpoenaed by the U.S. Securities and Exchange Commission). He wrote a Wall Street Journal op-ed in his defense.

Personal

According to Malcolm Gladwell (in a New Yorker article and his book What the Dog Saw), “Spitznagel is blond and from the Midwest and does yoga. He exudes a certain laconic levelheadedness.” Nassim Taleb likened Spitznagel to Herbert von Karajan in sartorial appearance (as well as in their penchant for planes, automobiles, and hatha yoga) and said Spitznagel invests “like a German engineer, fearless and with an iron discipline.” Forbes described the “unruffled,” loafered Spitznagel as looking “better prepared for a yacht race than for doomsday.”

As Richard Bradley wrote (in Worth magazine): “You wouldn’t call Spitznagel warm and fuzzy; he’s not the kind of guy who’ll greet you with a bear hug and a slap on the back. But he’s funny in a dry, understated way, thoughtful and candid. Asked a question, he’s more interested in delivering a genuine answer than one intended to reflect well upon him.

“Spitznagel is unusual not just because of how he invests, but how he lives—far from the typical hedge fund milieu of Wall Street and Greenwich.” Spitznagel keeps homes in Michigan (including Wildwood Manor, a much-publicized estate in wealthy Bloomfield Hills, and a century-old log compound in Northport on a spit of land on Lake Michigan, both built by early automobile barons) and in Miami, Florida. (In 2014, Spitznagel moved his hedge fund Universa to Miami from Los Angeles, citing Florida’s “more hospitable business and tax environment” than California’s. He accordingly sold his notable Bel Air mansion that he acquired in 2009 from Jennifer Lopez and Marc Anthony.)

Bloomberg has said “Spitznagel does almost everything with zeal and intensity,” and described him honing his investing discipline by dodging oncoming taxicabs while skateboarding in New York City’s Central Park, snowboarding and piloting engineless sailplanes over California’s Sierra Nevada. (Spitznagel is also an instrument-rated pilot.) It reported in 2011 that Spitznagel seeded his family office (Idyll Holdings) with $100 million.

In his youth, Spitznagel was an orchestral horn prodigy, “probably the best high school player in the country” (and coincidentally shares the “horn duumvirate birthday” with the two greatest horn virtuosos ever), and was admitted to the Juilliard School of Music. He “wanted to be the principal horn player of the New York Philharmonic or the Chicago Symphony,” but scrapped his plans upon first visiting the grain pits at the Chicago Board of Trade.

Spitznagel recalled as a child his father (Lynn Edward Spitz-Nagel) would stack books by Mahatma Gandhi outside his bedroom door for him to read. Gandhi later became Spitznagel’s declared “hero”. In 2014, Spitznagel’s older brother (Eric) wrote a humorous article in The New York Times Magazine (“The Moat, the Millions and the $50 Timex Watch”) about Mark and the death of their father.

When once asked how to become a great investor, Spitznagel responded:

The most valuable things you’ll need to learn to be good at investing are patience, resilience, and self-discipline. You aren’t just going to learn these in school. My best financial advice: practice yoga.

Universa

In 1999, Spitznagel and author and financial mathematician Nassim Nicholas Taleb together created the first ever “tail-hedging” fund, Empirica Capital, and “became close partners, Spitznagel the disciplined trader, Taleb the more abstract theorist.” Taleb went on to popularize the “black swan” concept in his books, whereas Spitznagel went on to modify and implement the strategy (which became a major hedge fund investment asset class) at his very successful hedge fund Universa Investments, launched in 2007. (Taleb also played a passive role at Spitznagel’s Universa, though Taleb has no ownership interest and is a “risk adviser” that “doesn't know their positions” and is “not involved in trading.”)

Taleb has said “One thing Mark taught me was that when someone isn't afraid of losing small amounts, they’re almost invincible.” “Mark’s portfolio is robust.”

In a Bloomberg TV interview (“Meet the World’s Most Bearish Investment Manager”), Spitznagel said that his strategy allows his investors to be “responsibly long” the stock market.

Some have called Spitznagel’s approach “doomsday” investing, for which, according to Forbes, he has many “copycat” followers. Spitznagel is presumed to employ positions such as out-of-the-money puts on overvalued equities (for example, Lehman Brothers, about which he has responded “It’s a regrettable aspect of our trade that we tend to do very well on others’ misfortune”), which he regards as primarily a value-driven bullish play on cheapened markets, providing dry powder specifically when asset prices are depressed (making him “the inverse Warren Buffett” and linking him to the value investing philosophy).

For profiting off market crashes, “I’m always in this position where I look like the jerk,” Spitznagel has said. “The jerks should be Ben Bernanke and Alan Greenspan,” because of Federal Reserve actions that create asset bubbles, or for the ways in which the Fed intervenes to stave off the inevitable consequences of those bubbles. According to Spitznagel, he has basically been investing against the Federal Reserve and its monetary policies his entire career.

Ironically, Spitznagel is largely indifferent to the concept of “black swan events”. In a February, 2015 New York Times op-ed titled “The Myth of Black Swan Market Events” where he connected every similar high point in the Tobin's Q-ratio since 1900 (specifically in 1905, 1929, 1936, 1968, 2000, and 2007) with past monetary interventionism and subsequent stock market losses (of -19%, -85%, -36%, -29%, -44%, and -50%, respectively)—and thus implied that another crash is coming—Spitznagel said:

The bear markets we saw following all of these periods were not dreaded “black swan” events at all. They were perfectly predictable, by economic logic alone, the same logic that says governments cannot manipulate market prices without creating distortions that will always, without exception, be counterproductive.

In the next stock market crash, we will be told that the fault was some surprising economic or geopolitical shock. Let’s remind ourselves now that this will be false, the proximate cause rather than the ultimate cause. The ultimate cause is the same ultimate cause that has been demonstrated to us for over a century: distorted and manipulated markets.

Market predictions

While, according to The New York Times, Spitznagel “gained credibility in the investment world by predicting two market routs in the past decade, first in 2000 and then in 2008” (including a large bet against Lehman Brothers), as well as by consistently notching up strong returns, he has since publicly made other market calls.

• In July 2009, Spitznagel opened a fund betting on inflation—with a Wall Street Journal front-page headline stating “Spitznagel Bets Reputation on Inflation” (after which the price of gold approximately doubled over the next two years, and Spitznagel’s fund made 20% annual gains).
• In November 2013, Spitznagel called the market valuation of the cryptocurrency bitcoin “scary” and “dangerous,” despite his strong Austrian views against fiat money (and bitcoin subsequently lost over a third of its value within a month, and lost almost 80% in just over a year).
• In June 2011, CNBC reported on a research piece by Spitznagel which predicted a 20% correction in the S&P 500 stock index (and the S&P 500 subsequently lost 20% within four months, as Spitznagel’s funds reaped from 20% to up to 10-fold gains).
• After that, in an October 2013 Maria Bartiromo interview, Spitznagel called for another crash in the U.S. stock market, this time up to 40%—though regarding its timing he said “I think it's probably naive to think we can pinpoint such a thing. If history is any guide, we should expect it sooner than later. But, history need not be a good guide because we're in this monetary experiment the likes of which we really haven't seen.” (The results of his latest prediction remain pending.)

Roundabout Investing

File:DaoofCapital.jpg

The Dao of Capital
Wiley (2013)

In Spitznagel’s book The Dao of Capital he coins his investing approach as “roundabout investing,” named after the Austrian School of economics concept of Produktionsumweg. (He also refers to it as “Austrian investing,” as the theories inform his notorious very concentrated bearish bets in his so-called “tail-hedging” funds.) Paul Tudor Jones has said of Spitznagel’s book that “Mark champions the roundabout,” and “shows how a seemingly difficult immediate loss becomes an advantageous intermediate step for greater future gain, and thus why we must become ‘patient now and strategically impatient later.’” Spitznagel likens his process to “life’s roundabout road to success, as opposed to the direct. The direct way is easy but ultimately unrewarding. The roundabout, indirect way takes longer but leads to a better strategic advantage.” Spitznagel’s roundabout is basically about delaying gratification and taking small setbacks now to gain enormous positional advantage later—the art of taking a circuitous path to an endpoint.” His examples range from forest ecology, the military strategies of Sunzi and Clausewitz, and games such as baseball and weiqi. He wrote that he first came to understand roundaboutness from the words of Austrian conductor Herbert von Karajan: “For the moment, let the others decimate themselves in the Viennese battle of all against all—my time is sure to come and I await it, calm and confident.”

Spitznagel describes the difficulty in being roundabout in the words of Frédéric Bastiat: “we pursue a small present good which will be followed by a great evil to come, rather than a great good to come at the risk of a small present evil.” Spitznagel calls Henry Hazlitt’s book Economics in One Lesson (an expansion on Bastiat’s 1850 essay Ce qu’on voit et ce qu’on ne voit pas) central to his development, and wrote “if I am able to get my children to read only one economics text in their lifetime, God forbid, it would be Hazlitt’s.” According to his research, the Cranbrook Kingswood school (where he sends his children—and known as an “elite prep school” with Mitt Romney among its notable alumni) is alone among “virtually all the top preparatory schools in the United States” in using Hazlitt’s or any other “Austrian-friendly text” in its curriculum.

In his book, Spitznagel reveres Henry Ford, “the quintessential roundabout entrepreneur,” for his patience in reinvesting capital and his disdain for “shortsighted finance” and the “side show” of the stock market.

In a series of Wall Street Journal and Forbes op-eds, Spitznagel extolled the views of Ludwig von Mises, Eugen von Böhm-Bawerk, and Frédéric Bastiat, and criticized the interventionism of Federal Reserve chairman Ben Bernanke (calling him “easily the most significant market manipulator in history”) and U.S. President Barack Obama. Specifically, in his article “Christmas Trees and the Logic of Growth”, and subsequently in The Dao of Capital, Spitznagel made an analogy of the lessons learned from previous wildfire suppression policy in Yellowstone Park (what he calls the “Yellowstone Effect”) to the Fed’s bailout and crash-suppression policies (and resulting malinvestment). In a conversation in National Review he said:

A crash, or the liquidation of assets that have grown unimpeded by economic reality (as if there were more nutrients in the ecosystem than there actually are), looks to academics and bureaucrats—and just about everyone else as well—like the system breaking down. It is actually the system fixing itself. We live in an economic age where we’ve simply lost our ability to look at the world in this way, though I suspect we’ll be reminded of it again sooner rather than later.

He has also blamed the Fed for increasing wealth disparity, drawing on the works of Mises, Rothbard, and Hayek, and his Austrian positions have made him a target of notable Nobel and Keynesian economist Paul Krugman.

Spitznagel credits “a fortuitous economics course at Georgetown University taught by Professor George Viksnins (‘Uncle George’)” as what “started it off” for him, and credits his roundabout investing style to his time right after college as a fledgling pit trader in the Treasury bond futures pit at the Chicago Board of Trade. He described his time as a young trading clerk idolizing bond trader Lucian Thomas Baldwin, studying his “disciplined control in alternating between tremendous patience and overwhelming aggression.” As the youngest trader in the bond pit at twenty-two, Spitznagel was mentored by 50-year veteran corn and soybean trader Everett Klipp (a.k.a. the “Babe Ruth of the Chicago Board of Trade”), who had Spitznagel “pretty much brainwashed by the age of 16” into following his mantra “you’ve got to love to lose money, hate to make money.”

As Spitznagel recalled the end of a trading day in the pit:

Even if I’d lost money, I would be happy going home knowing that I’d traded the way I wanted to trade.

Idyll Farms

Idyll Farms in Northport, Michigan

Spitznagel built, owns, and operates Idyll Farms, a pasture-based goat farm and creamery that produces award-winning artisanal farmstead chèvre. (The word Idyll is “a song describing pastoral life,” as well as a reference to Siegfried Idyll.) Idyll Farms chèvres won multiple and repeat awards at the American Cheese Society North American competition in 2013 and 2014. In starting his farm, Spitznagel has said he wanted to “capture the terroir” of his native region, as well as “feel engaged with something real, something tangible, and he wanted his kids to have that connection too.” In discussing his life as both financier and farmer, Spitznagel has said “What’s going on in the financial world really shouldn’t matter that much. It’s the tail wagging the dog. What matters is making things, making real things, tangible things people can use.”

Nassim Taleb has quipped that Spitznagel farms in order to satisfy his desire to be “a Victorian country gentleman”.

Spitznagel regularly imports French experts to teach his local staff about goat farming and cheese making and help refine his chèvres. The 200-acre farm estate is located at the site of a 150-year-old dairy farm in his hometown of Northport—a town “perched on the edge of Lake Michigan, it has a peaceful beauty that hasn’t changed much in the decades since he lived there.” The farm is “a beautiful piece of land, with patches of forest, lots of open pasture and rolling hills from which you can see for miles.” There, “in the bucolic hills of Michigan,” according to Der Spiegel, “he produces cheese according to environmentally sustainable methods, because he views modern agriculture, with its large-scale pesticide use and automated factory farms, as degenerate.” He “wanted to show that you could reject the tenets of modern commercial farming and create a sustainable, profitable business without the help of government subsidies or growth hormones or artificial fertilizers.”

Factory farming, he says, is “an ideal metaphor” for the economy. To Spitznagel, government intervention in both economic (monetary manipulation) and agricultural systems (the subsidization of grain and GMO production, monoculture, and the excessive use of petrochemicals) distort and impede otherwise productive, healthy, and sustainable natural processes in exchange for short term benefits. “Modern agriculture is about mining the soil for maximum, immediate productivity,” he says, while at Idyll Farms, through sustainable pasture management rather than the use of factory-like monoculture feed, “we’re thinking about how productive this land is going to be in a generation. This is antithetical to the world we live in.”

In a conversation with Ron Paul, Spitznagel said “It’s crazy how much bureaucrats determine what we grow and what we eat. Sustainable farmers should all be libertarians.”

While Spitznagel has said that his motive in farming “is to change the way that we approach agriculture in this country, not just profit,” regarding his belief in farming as a good investment he has also said:

I’m a firm believer that agriculture is going to be a great investment and entrepreneurial opportunity for the next generation. Farming is headed for a sea-change: farmers are getting old, we’re depleting the fertility of our topsoil, creating highly susceptible GMO monocultures, and we don’t fully appreciate the implications of water—just to name a few.

Libertarianism

Spitznagel and Ron Paul in 2012

Spitznagel is an avowed libertarian, and says that he has been one since high school. In fact, “his investing philosophy is really an extension of his deeply held libertarian beliefs about government intervention in the marketplace.”

Spitznagel is a libertarian Republican and, along with entrepreneur Peter Thiel, has been the principal supporter of the Republican Party presidential primary campaign of (Texas Congressman) Ron Paul, a friend and fellow Austrian economics advocate who “shares his contempt for the Federal Reserve.” In 2012, Spitznagel hosted multiple fundraisers for the congressman (including a party at Spitznagel’s Bel Air home). Spitznagel has been called “arguably Paul’s main economic theorist/popularizer outside an academic context” who “could be Treasury Secretary to a future president Paul, Ron or Rand.”

In 2015, Spitznagel was named Senior Economic Advisor to the 2016 Republican Presidential campaign of (Ron’s son) Rand Paul. (The New York Times said “the two share a similar outlook on the government’s role in the financial markets: that it should not have one.”) Spitznagel has called Rand “the only candidate that really understands the destructive ramifications of current economic policy driven in large part by a reckless Federal Reserve.”

Detroit

Spitznagel is an active supporter of community revitalization in Detroit, Michigan. He has said that he has “very high hopes for the city of Detroit,” and in 2013 penned a Project Syndicate article entitled “Austrian Detroit?”. The New York Times has claimed that “Spitznagel has a vested interest in seeing Detroit make a comeback” due to large personal commercial real estate holdings there.

In particular, Spitznagel has been a leader in Detroit’s urban farming movement. In 2013, Spitznagel established a farm called Idyll Farms Detroit for pasturing goats in Detroit’s heavily blighted Brightmoor neighborhood. The farm was a philanthropic effort to have the grazing goats clean up overgrown foliage and to help the struggling community through agriculture, jobs, education, and self-sufficiency. Idyll Farms Detroit spent a year setting up infrastructure, hiring local farm laborers, and consulting with Brightmoor community leaders—who advised the farm “not to engage with city hall” because they thought “the city would not enforce the animal control ordinance” banning all livestock within the city. In June, 2014, the farm moved a herd of wethers (castrated male goats) along with movable pens and electric fencing from Spitznagel’s Idyll Farms in Northport to Idyll Farms Detroit in Brightmoor. Despite heavy local support and national media attention for “Spitznagel’s caprine ‘guerrilla farming’ initiative” (including from Ron Paul), as well as the similar use of eco-friendly goats in other metropolitan areas, Mayor Duggan immediately ordered the goats removed because of the ordinance. The New York Times commented that “If this all sounds a little unusual, Mr. Spitznagel has never been one to bend to convention.”

Publications

• Spitznagel, M. (2015) The Myth of Black Swan Market Events, The New York Times, February 13, 2015
• Spitznagel, M., Yarckin, B., Mann, C. (2015) Capital asset pricing mistakes: Consistent opportunities in tail hedged equities, Pension & Investments, January 18, 2015
• Paul, R., Spitznagel, M. (2014) Americans Must Choose Non-Intervention for Peace, Prosperity, Voices of Liberty, August 26, 2014
• Taleb, N.N., Spitznagel, M. (2014) Inequality, Free Markets, and Crashes, National Review, May 31, 2014
• Spitznagel, M. (2013) The Dao of Capital: Austrian Investing in a Distorted World. New York: John Wiley & Sons. ISBN 978-1-1183-4703-4.
• Spitznagel, M. (2013) An Economy-Suffocating American Battle: Our Present Vs. Future Selves, Forbes, November 4, 2013
• Spitznagel, M. (2013) Interventionist Policies Cause Of, Not Cure For, Busts, Investor’s Business Daily, October 7, 2013
• Spitznagel, M. (2013) How to Prevent a Market Crisis, Institutional Investor, September 5, 2013
• Spitznagel, M. (2013) Zero Rates Take Investors Down A Dangerous Path, Forbes, August 12, 2013
• Spitznagel, M. (2013) Austrian Detroit?, Project Syndicate, August 6, 2013
• Spitznagel, M. (2013) The Role of Capital Has Politicians Confused, Forbes, January 31, 2013
• Spitznagel, M. (2012) Our Malinvestment In President Obama Will Bring Painful Consequences, Forbes, November 15, 2012
• Spitznagel, M. (2012) The Grand Shi Strategy of Ron Paul, Forbes, July 29, 2012
• Spitznagel, M. (2012) The Austrians and the Swan: Birds of a Different Feather (white paper), May, 2012
• Spitznagel, M. (2012) How the Fed Favors The 1%, The Wall Street Journal, April 19, 2012
• Spitznagel, M. (2012) Capital Shrugged, Project Syndicate, February 16, 2012
• Spitznagel, M. (2011) Christmas Trees and the Logic of Growth, The Wall Street Journal, December 23, 2011
• Spitznagel, M. (2011) Bernanke Ups the Ante, The New York Times, October 4, 2011
• Spitznagel, M., Taleb, N.N. (2011) The Great Bank Robbery, Project Syndicate, September 2, 2011
• Spitznagel, M. (2011) The Dao of Corporate Finance, Q Ratios, and Stock Market Crashes (white paper), June, 2011
• Spitznagel, M. (2011) All About the Benjamins, The Wall Street Journal, March 30, 2011
• Spitznagel, M. (2010) The Fed and the May 6 'Flash Crash', The Wall Street Journal, May 28, 2010
• Spitznagel, M. (2009) The Man Who Predicted the Depression, The Wall Street Journal, November 7, 2009
• Taleb, N.N., Golstein, D.G., and Spitznagel, M. (2009) The Six Mistakes Executives Make in Risk Management, Harvard Business Review, October, 2009
• Taleb, N.N., Spitznagel, M. (2009) Time to tackle the real evil: too much debt, Financial Times, July 13, 2009