Mark Spitznagel

Personal

According to Malcolm Gladwell (in a New Yorker article and in 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 his “no chitchatting” and “technical superiority” (both in quantitative finance and on alpine slopes), and said Spitznagel invests “like a German engineer, fearless and with an iron discipline.” (Spitznagel’s paternal ancestry is Swiss-German, and his surname means “sharp nail” in German.) Forbes described the “unruffled,” loafered Spitznagel as looking “better prepared for a yacht race than for doomsday.”

As Richard Bradley wrote (in a Worth magazine profile): “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 splits his time between Miami, where his 20th-floor office overlooks the Atlantic, and Michigan, where his family lives” (on a sprawling estate containing livestock ranches, hunting forests, a Lake Michigan summer compound, and a historic country house). In 2014, Spitznagel moved his hedge fund Universa from Los Angeles to Miami (and accordingly sold his notable Bel Air mansion that he acquired in 2009 from Jennifer Lopez and Marc Anthony), citing Florida’s “more hospitable business and tax environment” than California’s. Spitznagel was among the first in a growing list of prominent hedge fund managers moving their operations to Florida.

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 (once resulting in a separated shoulder), snowboarding in Switzerland 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 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 (Lynn Edward Spitz-Nagel, a UCC minister and “antiwar activist” who died in 1999).

Spitznagel has said that over the years he has gained much investment insight from studying “the holy game of poker.”

Universa Investments

In 2007, Spitznagel founded the hedge fund Universa Investments, where he is the Chief Investment Officer, and which specializes in profiting from (and thus providing a type of insurance against) extreme market risk. 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 Spitznagel “a fortune” according to The Wall Street Journal.

Spitznagel has said that he specifically targets very “lumpy returns” in his trading (what Forbes has called “a string of mediocre results interrupted occasionally by spectacular years”) which he says “ultimately keep away competitors.” He has compared the patience and discipline required in betting on rare events to “Hemingway’s Santiago waiting for what seems like an eternity to catch the big fish.”

As Spitznagel describes the “extreme asymmetric payoffs” of his approach:

We tend to lose or draw—most of the time—these small battles or skirmishes. But, ultimately, we win the wars.

Tail-hedging

Spitznagel is a pioneer in so-called “tail-hedging,” or “black swan” investing, an investment strategy intended to provide “insurance-like protection” against stock market crashes, generally by owning far out-of-the-money put options on stocks. Spitznagel considers his tail-hedge strategy “a less conventional and somewhat more exotic” (as well as superior) form of safe haven investment. (Spitznagel says that he “has spent his life trying to create the best safe haven investment out there.”) While he has called his strategy “in many ways functionally equivalent” to gold as a safe haven, he has also claimed (in a 2016 Barron’s article What’s the Best Safe Haven for Investors?) that the “explosive protection and nonlinearity” of his strategy make it “the one safe haven that is as good as—and even better than—gold.” (According to Spitznagel, conventional safe havens such as U.S. treasuries, Swiss franc, high dividend-paying stocks, hedge funds, fine art, and U.S. farmland have crash returns that are very low and even negative, so “they simply do not provide any insurance protection.” He also called VIX futures “a real stinker of a trade.”)

Spitznagel calls himself “a hedge fund manager that actually hedges for his clients. This is something of an old fashioned idea in this day of just gambling on the next Fed bailout.” He describes his “highly nonlinear, insurance-like” strategy which “explodes in value” in a crash as an investment that “is there presumably so you can do something risky that you wouldn’t otherwise do.” The New York Times has described Universa’s investors’ ability to profit even in a bull market, and how Spitznagel’s strategy allows his investors to hold long stock positions that they often otherwise wouldn’t. Spitznagel has said “what I do is not just about playing good defense,” but “also about playing good offense,” and that his strategy specifically allows his investors to be “responsibly long” the stock market. In a 2015 video (“Spitznagel on the Paradox of Higher Returns with Lower Risk”), Spitznagel explains how the “asymmetry” of his payoff allows his investors to do well “in both up and down markets,” with lower risk. As Nassim Taleb has said:

When it comes to investing in this environment, my colleague Mark Spitznagel articulated it well: investors are left with a simple choice between chasing stocks that have an increasing chance of a crash or missing out on continued policy effects in the short term. Incorporating a tail hedge minimizes the risk in the tail, allowing investors to remain invested over time without risking ruin.

Some have called Spitznagel’s tail-hedging strategy “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”). As Spitznagel has said,

I would call the greatest investment strategy there is, attributable to John D. Rockefeller, “Buy when blood is running in the streets.”

“Spitznagel’s strategy stems from his skepticism toward government efforts to revive the economy.” In his reticence to discuss his funds, he has been “content with descriptions that his fund had small losses each year as he wagered against the market.”

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. Spitznagel says that he has basically been investing against the Federal Reserve and its monetary policies his entire career, and he has called central banks “the root of all evil in the market.”

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.

In 1999, Spitznagel and author and financial mathematician Nassim Nicholas Taleb (who was Spitznagel’s professor at NYU) 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 found Universa and thus modify and implement the strategy, which became a major hedge fund investment asset class. Taleb joined Spitznagel’s Universa as Distinguished Scientific Advisor, “but in a strictly hands-off, passive capacity” (contrary to occasional press crediting him with Universa’s investing). 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.”

Ironically, Spitznagel is largely indifferent to the concept of “black swan events.” In a 2015 New York Times op-ed titled “The Myth of Black Swan Market Events”, 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), which he called “perfectly predictable, by economic logic alone”—and thus implied that another crash is coming. Spitznagel has said that a crash ”is not a black swan. But the reason I’m going to still call it a black swan is because the markets still price it as a black swan.” As he wrote in The Dao of Capital:

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. The vast majority of market participants fail to expect what should be, in reality, perfectly expected events.

Stock market timing calls

Spitznagel has rarely made market timing forecasts, and has called attempts at timing a crash “a fool’s errand, and fortunately such efforts are largely irrelevant” with his strategy. In 2013 he said:

I think it’s probably naive to even 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 before.

Still, Spitznagel has publicly made several stock market calls—both bearish and bullish:

Commodities trading

From the age of 16, Spitznagel was apprenticed by 50-year veteran corn and soybean trader Everett Klipp (a.k.a. the “Babe Ruth of the Chicago Board of Trade”), who stood with him in the commodity futures pits and groomed him to be a risk averse, disciplined trader. Klipp specifically “pretty much brainwashed him by the age of 16” to “limit losses by having him immediately exit trades as soon as they moved against him.” He likened it to “quickly folding a hand” in poker, and his mantra was “you’ve got to love to lose money, hate to make money.” By 22, Spitznagel was an exchange member and independent pit trader at the Chicago Board of Trade.

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.

Since leaving the Chicago trading pits, Spitznagel has continued to actively speculate in commodities. In July 2009, Spitznagel launched a new strategy betting specifically on “a big leap in prices of commodities such as corn, crude oil,” and precious metals—a notably “huge wager,” according to The Wall Street Journal, where Spitznagel “bet his reputation.” Over the next two years, the prices of corn, crude oil, gold, and silver gained approximately 100%, 50%, 100%, and 200%, respectively, in what has come to be known as the “2000s commodities boom.”

Spitznagel has strong Austrian views on precious metals and against fiat money, saying “As dollars are clearly a decaying asset, there’s sound economic logic behind gold’s long-term appreciation.” However, regarding the run up in gold prices and his gold trading, Spitznagel has said, “How many people acquire gold only after it goes up, and dump it when it doesn’t? I’d recommend the opposite strategy.” He has written that “gold’s millennia of safe haven attributes remain very much intact,” and considers gold and his tail-hedging the only “two safe havens truly worthy of the name.” (Spitznagel also lamented “the sad monetary degradation of the Swiss franc” away from its hard currency safe haven status.)

Libertarianism, Austrian economics

Spitznagel is an avowed libertarian, and says that “his investing philosophy is really an extension of his deeply held libertarian beliefs about government intervention in the marketplace” and the distortions therefrom. He often references specifically Ludwig von Mises (“The Man Who Predicted the Depression”) and Friedrich von Hayek as influential to his thinking.

Spitznagel wrote a book in 2013 titled The Dao of Capital: Austrian Investing in a Distorted World about the Austrian School of economics and its application to investing. Austrian economist and Mises Institute Fellow Peter Klein said Spitznagel’s book did “a remarkable job summarizing, synthesizing, and extending the great Austrian tradition, and weaving it into a wonderful set of practical lessons.” In his book Spitznagel coins his investing approach as “roundabout investing” or “Umweg”, named after the Austrian concept of Produktionsumweg. He also refers to it as “Austrian investing”, as the theories inform his notorious very concentrated bearish bets in his 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”—“the art of taking a circuitous path to an endpoint,” delaying gratification and taking small setbacks now to gain enormous positional advantage later. Spitznagel has described the challenge in the words of Bob Dylan:

We do what feels the best in the short run. “Let me forget about today until tomorrow,” that kind of thing.

He has also blamed the Fed in a Wall Street Journal piece 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 has been an active libertarian Republican through his involvement in multiple U.S. presidential campaigns. Along with entrepreneur Peter Thiel, he 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.” Spitznagel was 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.” Paul has said “As one of the leading voices in the country on economic policy, Mark has been a key friend and ally, and I’m thankful for his always-ready advice.”

In a 2015 Fox Business interview, Spitznagel said:

Great myths die hard. And I think what we’re witnessing today is the slow death of one of the great myths in human history: this idea that centrally planned command economies work, that they’re even feasible, and that they can be successful. It’s one of these enigmatic mythologies of the last hundred years in particular that we've been grappling with. Let’s remember that in the last hundred years a lot of blood has been shed over this mythology. And here we are today, how did we get here again?

Idyll Farms

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 cheeses received three awards at the World Championship Cheese Contest (including Best of Class) in 2016, as well as multiple and repeat awards (including in the broad all milk cheese category) at the American Cheese Society North American Competition in 2013, 2014 (the farm’s first two years of production), and 2016. Its cheeses were also named a “Best Artisanal Cheese” in Food & Wine magazine in 2016 and one of “The 49 Best American Cheeses” in Men’s Journal magazine.

In starting his farm in 2010, 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.”

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

Spitznagel imported expert cheesemakers from France and goat herders from the Pyrenees to help establish and refine his operations. (Though Spitznagel has been called “The Goat Whisperer” due to his habit of speaking to his goats in French, he says when he goes to the farm he tries “not to get in the way” of his staff.)

The 200-acre ranch is located at the site of a 150-year-old dairy farm in what he calls “Hemingway's boyhood northern woods” in his hometown of Northport. 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.” “Unlike conventionally managed dairy animals raised primarily on grain diets for the production of most commercially available cheeses, Idyll Farms’ goats are pasture-fed using rotational grazing practices which mimic and harness nature's complex, productive processes.”

To Spitznagel, government intervention in agricultural systems (the subsidization of grain and GMO monoculture production, and the excessive use of petrochemicals), like its monetary interventionism, distorts and impedes otherwise productive, healthy, and sustainable natural processes in exchange for short term benefits.

Spitznagel has a strong anti-GMO opinion, described in a New York Times piece co-authored with Taleb, where they wrote “The GMO experiment, carried out in real time and with our entire food and ecological system as its laboratory, is perhaps the greatest case of human hubris ever.”

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.

When (the Swiss-German magazine) BILANZ asked him what he would do if the Federal Reserve system finally collapsed and he no longer had any more stock market crashes from which to profit, Spitznagel quipped:

Dann werde ich mich auf das Leben als Farmer und meine Ziegen konzentrieren. [Then I would focus on my life as a farmer and my goats.]

Idyll Farms Detroit

Spitznagel is an active supporter of the revitalization of Detroit, Michigan. He has said that he has “very high hopes for the city of Detroit,” and 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. The Sierra Club lauded Spitznagel’s vision of a “holistic system of urban agriculture” (where food production is moved closer to consumers in urban communities) and his belief that “Detroit is uniquely positioned to be the birthplace of an agricultural renaissance, because its abandoned lots endow it with plenty of cultivable land, and the city is teeming with people in need of work.”

In 2013, Spitznagel established a farm called Idyll Farms Detroit for pasturing goats in Detroit’s heavily blighted Brightmoor neighborhood, in a philanthropic effort to have the grazing goats safely and economically clean up overgrown foliage and to help the struggling community through agriculture and self-sufficiency. Despite heavy local support and national media attention for “Spitznagel’s caprine ‘guerrilla farming’ initiative,” as well as the similar use of eco-friendly goats in other metropolitan areas, the mayor 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