The Dao of Capital: Austrian Investing in a Distorted World

by Mark Spitznagel

Nowhere in the history of forestry was that evil more savagely felt than in Yellowstone National Park in 1988, when nearly 800,000 acres—well over one-third of the park—burned and/or suffered fire damage.

In 1995, the Federal Wildland Fire Management policy recognized wildfire as a crucial natural process and called for it to be reintroduced into the ecosystem.

‘A petty thief is put in jail. A great brigand becomes a ruler of a State.’ Thus, the only difference between state rulers and out-and-out robber chieftains is the size of their

To avoid economic depressions—just as to avoid epic forest fires—the surprising solution is to let the homeostatic system work; “Don’t just do something, sit there.”

What a financially distorted world tells us is that the market, just like the overgrown forest, carries within it the seeds of its destructive correction; thus the inevitable bust that follows the boom is not (or at least should not be) an unexpected event.

When they occur, stock market crashes seem so irrational to most, so haphazard and unforeseeable, so black swan. But are they irrational? Are they even unforeseeable? Or do they simply stem from the distorting effects of credit expansions as the Austrians suggest?

Clearly, 20 percent or worse crashes are not the random hundred-year flood as people generally think: They happen fairly quickly under certain conditions—a very distorted MS index—while those conditions have happened a handful of times over the past century;

Truly, the real black swan problem of stock market busts is not about a remote event that is considered unforeseeable; rather it is about a foreseeable event that is considered remote.

Each month the portfolio spends one half of one percent on puts, and the remaining 99.5 percent stays invested in the S&P index.

lower EBIT for about the first two years, in contrast to the immediate growth of firms with higher Faustmann ratios.) And when one considers what’s driving this detour to the right, it becomes clear that this is indeed “going right in order to then better go left.”

Graham, the “dean of Wall Street,” lost nearly 70 percent of his largely arbitrage portfolio in 1929–1932.

shall be restored that now are fallen and many shall fall that now are in

we only see the final product or result, the end of an interval and process, and not the means, the winding path that produced it.