The Dao of Capital, Mark Spitznagel
(back to books)
- Substrat: exploit systematic edges via indirect, roundabout gains through time
- “Don’t just do something, sit there.”
- Austrian KPIs:
- Mises Stationarity index (or Tobin's Q) = present value of cashflows (= market value) / replacement cost of cashflows (= book value)
- specific definition: total U.S. corporate equity / total U.S. corporate net worth
- ROIC = EBIT / invested capital (operating capital required to generate that EBIT)
- high ROIC firms have greater increases in invested capital (suggests more complex/roundabout capital structure)
- „Siegfried“ = company with ROIC > 50%
- Faustmann ratio = market capitalization (of common equity) / net worth (invested capital + cash - debt - preferred equity)
- Investment strategies (intermediate advantage for final objective)
- Misesian investment strategy: buy/sell when MS index is low/high (author's data scan: historically high/low was 1.6/0.7);
when selling, buy rolled one-month treasury bills until MS index is low again
- more than 2% outperformance to long index over time with avg. underperformance duration of 3 years
- Austrian Investing I: 99.5% long + 0.5% rolled 2-month extremely out-of-the-money puts in S&P Composite Index
- advantage: no period of being uninvested in stocks; disadvantage: highly illiquid puts
- exploit opportunities across time
- Austrian Investing II: identify high ROIC firms with low Faustmann ratio
- possible: insiders know something we don’t for a particular company; but in aggregate,
more likely that others have more immediate time horizon
- „Each month I purchase the lowest Faustmann ratio firms among those with recent ROICs above 100 percent
(with further screening for size and liquidity), and I turn them over as they eventually fail to meet our criteria
(checking each year).“
- exploit opportunities cross-sectionally at the same point in time
- Mises’ picture of highly industrialised economy: many well-formed embedded circles,
with a width that represents the magnitude of the asset classes that built over time
- capital structures are autocatalytic (what came before leads to & is contained in what comes next)
- angiosperms vs. conifers
- angiosperms' immediate high growth is end
- conifers' growth as means to end: slow initial buildup (develop strong roots, thick bark), then explosive growth (relative to angiosperm)
- small natural wildfires destroy with precision („agent of creative destruction“), great unnatural fires indiscriminately