The Dao of Capital: Austrian Investing in a Distorted World
I strongly urge you to read The Dao of Capital; even though the journey is a long one, it’ll be worth your time because of the distinctive perspective. It provides a much-needed fresh insight into the world of capital, and it helps to provide a broader context for understanding how things like globalization and technology are impacting our lives. Furthermore, it offers guidance on how to navigate these changes and leverage the opportunities they present.
The book also contains some inspiring and thought-provoking anecdotes that will help you to think differently about the world of capital. It is an invaluable resource for anyone interested in taking their understanding of business to the next level. So don’t miss out on this thought-provoking and informative read – pick up a copy today!
What to Expect
The Dao of Capital is not a guidebook on investments or tactics. It’s more like a treatise, like “The Art of War”. The focus is geopolitics and philosophy, not just tactics. Spitznagel’s view of life overall is refreshingly unique. His repetition can be tedious at times, but it’s still worth your time investment.
The author is great at coming up with different perspectives, but sometimes he uses complicated metaphors that make the book difficult to understand. I often had to go back and review a previous metaphor so that I could keep up with the current concept. Even though this strategy may fit well with the overall theme of the book, there is something to be said for simplicity when conveying your message.
Unique Tactics for Investing
Upon purchasing this book, I wanted to gain knowledge about specific investments in what I knew was an imbalanced market. Much like the author, I share his Austrian economic views and liberty-based political philosophies. Consequently, we both believe that Federal Reserve is responsible for distorting the economy. I sought his advice on how to grow my money while avoiding dangerous inflationary consequences and the market’s inevitable boom-and-bust cycles. Unfortunately, there is no silver bullet solution for this, as he only lightly grazes over potential methods.
If you’re interested in the detailed strategy of Austrian Investing, it’s simple: stay out of the stock market when Central Banks are artificially propping it up, and wait for the bust. By doing this, you can buy stocks at a highly discounted rate or -at best- at a level that accurately reflects reality.
The second half of his Austrian Investing I philosophy- tail-hedging, an investing tactic he is famous for seems impossible to replicate by the average investor in my opinion. Buying S&P 500 index options that are “out of the money” would be part of this process. If you want to tail hedge but don’t have the time to learn about options, you’re basically out of luck.
Austrian Investing II outlines the best ways to invest during periods of high market distortion when many prices are artificially inflated. He also provides strategies for after a market crash, when some equities may be closer to their natural value. Austrian Investing II is a more detailed form of value investing that takes Federal Reserve-induced volatility into account; with a focus on companies who reinvest their profits wisely back into the company to make it more efficient.
Although there is some tactical information included at the end of this book, it falls short compared to other investment manuals. Although I understand why the author chose not to include more tactics throughout the book, I still think that it would have been helpful for readers.
I feel it’s only fair to warn you that if you’re not familiar with financial concepts and terminology, Alex doesn’t explain them very well once he gets into the nitty-gritty of Austrian Investing. Considering it takes a while just to get through his extended metaphor about conifers and the boreal forest, I would have thought he could at least take a moment to describe these things in layman’s terms (instead of telling us we need to go read up on them elsewhere).
Austrian Economics
I read this book not to learn more about Austrian Economic theory, but because I wanted to get a finance and investment education from someone with an Austrian mindset. Even professional economists in the same tradition as Spitznagel would enjoy his modern perspectives on classic Austrian texts.
If you are new to Austrian Economics or have only heard biased reporting about it from the mainstream media, this book would be a great introduction to the subject. Dao of Capital covers theories from Bastiat, Menger, Bohm-Bawerk, Hayek, Rothbard, and (of course) “the Master” Ludwig Von Mises.
While “Road to Serfdom” and Rothbard’s “Libertarian Manifesto” cover more of the philosophical aspects of liberty, this book dives deep into key themes surrounding classical liberalism that is based mainly on markets.
Other Reviews
Review
“Investors of all kinds will find immeasurable value in this convincing and thoroughly researched book where Mark champions the roundabout. Using thought-provoking examples from both the natural world and the historical world, The Dao of Capital 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.’”—Paul Tudor Jones II, Founder, Tudor Investment Corporation
“At last, a real book by a real risk-taking practitioner. The Dao of Capital mixes (rather, unifies) personal risk-taking with explanations of global phenomena. You cannot afford not to read this!”—Nassim Nicholas Taleb, Author of The Black Swan
“You really should read Spitznagel’s book because you will learn a lot whether you agree with everything he says or not.”—Jim Rogers, Author of Street Smarts—Adventures on the Road and in the Markets
“Wall Street gamblers who believe the Fed has their back need to read this book. Mark Spitznagel provides a brilliant demonstration that the gang of money printers currently resident in the Eccles Building have not repealed the laws of sound money nor have they rescinded the historical lessons on which they are based.”—David Stockman, Former U.S. Congressman, Budget Director under Ronald Reagan, and Author of The Great Deformation
“A timely, original, right-economic principles and history-based approach to investing. Drawing on impressive philosophical building blocks, The Dao of Capital illuminates the wellsprings of capital creation, innovation, and economic progress. Dazzling!”—Steve Forbes, Chairman, and Editor-in-Chief, Forbes Media
“This is a magnificent, scintillating book that I will read over and over again. Every page is eye-opening, with numerous areas for testing and profits in every chapter. Here’s an unqualified, total, heartfelt recommendation, which coming from me is a rarity, and possibly unique.”—Victor Niederhoffer, Author of The Education of a Speculator
“The Dao of Capital is an impressive work. Spitznagel’s approach is refreshing—scholarly without being tedious. What a broad look at economic history it provides!”—Byron Wien, Vice Chairman, Blackstone Advisory Partners LP
“Spitznagel has written an essential new book. Indeed, The Dao of Capital: Austrian Investing in a Distorted World might be one of the most important books of the year, or any year for that matter.”—Forbes
“The Dao of Capital: Austrian Investing In A Distorted World by Mark Spitznagel (Wiley, 2013) is a beautifully crafted book, one I can recommend to readers of all political/economic persuasions… it is impossible not to be shaped by its carefully presented history and logic.”—Seeking Alpha
“There is no shortage of market bears who take a grim view of the stock market. But Mr. Spitznagel has gained credibility in the investment world by predicting two market routs in the past decade, first in 2000 and then in 2008. Still, Mr. Spitznagel’s approach is unusual for a money manager.”—The New York Times
“A fascinating and radical break from the investment dogma of the past several decades”—Fortune
“While The Dao of Capital makes for demanding reading, it repays the effort as a heady historical and intellectual feast.”—Barron’s
“Spitznagel could simply have written that investors need patience and must avoid the temptation of the quick profit; that building a successful strategy, and life, involves a longer-term approach foregoing instant gratification; that establishing a solid foundation while appearing not to create progress puts you in position for much greater success later on. He did not do that. Instead, he takes you on a tour of history and nature that illuminates these long-held truths. In the end, his message is simple, but by providing the historical underpinnings he brings them to life in a much more vibrant way.”—Futures Magazine
Among the “12 Books That Every Investor Should Read… deeply informative and will leave an impact on you.”—Business Insider
“A memoir and free market manifesto… that bring(s) theoretical concepts down to the practical level.”—Institutional Investor
“I applaud the book as a look into the thinking process of a great investor, especially one that has a clear and consistent understanding of the market process, the dangers of government intervention, and the benefits of Austrian economics.”—Ludwig von Mises Institute
“Mark Spitznagel assembles the best insights in human nature and economics to bring order out of the chaos of our world. Economists, investors, and laypersons alike will find abundant treasures in The Dao of Capital, one remarkably useful and exciting book!”—Lawrence Reed, President, Foundation for Economic Education and President Emeritus, Mackinac Center for Public Policy
“Spitznagel’s excellent book is a powerful presentation of how monetary policy deceives entrepreneurs and investors into making poor investing decisions. I highly recommend The Dao of Capital as a guide to avoiding these deceptions and thus to better investment results.”—Marc Faber, Publisher of The Gloom, Boom & Doom Report
“Spitznagel’s sound analytical foundations combined with shrewd strategic thinking provide the reader with a broad philosophy for long run success in wealth creation—where understanding the process that puts you in a position to win is more important than simply stating the goal of winning. I greatly recommend this book.”—Peter Boettke, Professor of Economics and Philosophy, George Mason University
“Mark Spitznagel has done a remarkable job summarizing, synthesizing, and extending the great Austrian tradition, and weaving it into a wonderful set of practical lessons. What’s more, he is a great writer and storyteller in the tradition of Bastiat, Hazlitt, and Rothbard, bringing subtle and sometimes complex ideas to life with memorable examples and sparkling prose. Highly recommended!”—Peter Klein, Professor of Applied Economics, University of Missouri and Carl Menger Fellow, Ludwig von Mises Institute
“Mark Spitznagel was one of the most profitable hedge fund managers both before and after the 2008 crash. The Dao of Capital is a comprehensive understanding of the theories of Ludwig von Mises and the Austrian economic tradition. Mark brings Austrian economics from the ivory tower to the investment portfolio.”—Ron Paul, Former U.S. Congressman
My Final Thoughts
It’s a challenge to review this book because I both enjoyed Spitznagel’s way of thinking and their perspective on strategy. However, the book can be dry reading at times. In spite of that, I’m still giving it 5 stars because it’s such an excellent piece overall.
As an IT professional and a Day Trader, though, I would’ve preferred less repetition and a stronger focus on key points (which this review also suffers from). Additionally, I would have liked to see more comprehensive coverage of technical financial concepts.
Overall, I still highly recommend it to anyone interested in Austrian Economics and value investing. Dao of Capital is a must-read for anyone looking to gain a greater understanding of finance and investing – as well as the underlying economic theory that’s often neglected in today’s world. It is also a great resource for investors who want to better understand how their trading decisions are affected by macroeconomic policy.