Mark Spitznagel is losing tons of money every day running Universa, his $6 billion hedge fund, and he’s weirdly calm about it.
Part of the reason is that he only has about 15 investors to answer to, and they have enough money to invest more than $50 million, Universa’s minimum investment, in a world doom scenario. (Several sovereign wealth funds, for example, which need to hedge for 2008-type scenarios, are invested in Spitznagel’s fund.)
Another is that Spitznagel’s fund is currently betting that a huge disaster is coming — that will cause the S&P to fall 40%, for example — and until it happens, he’ll keep losing money. It’s inevitable.
Forbes just did a profile on Spitznagel and described meeting him like this:
On roughly 95 trades out of 100 they lose money… Spitznagel is unruffled as he sits in his office listening to classical music and losing money each day. He is ready and waiting for the next black swan to arrive.
Spitznagel is pretty young to be so pessimistic; only about 40. So he might have gotten that way from Nassim Taleb, the author of “The Black Swan.” Spitznagel was Taleb’s right hand man at Empirica, another doom-scenario fund. Taleb is now principal and senior scientific adviser at Universa (he shut Empirica after getting seriously ill).
Spitznagel and Taleb had a friendly working relationship. An excerpt from a New Yorker article Malcolm Gladwell wrote about Taleb in 2002, when Spitznagel was just over 30 years old says:
Spitznagel is blond and from the Midwest and does yoga: in contrast to Taleb, he exudes a certain laconic levelheadedness. In a bar, Taleb would pick a fight. Spitznagel would break it up…
[Taleb] began to bicker with Spitznagel about what exactly would be put on the company boom box. Spitznagel plays the piano and the French horn and has appointed himself the Empirica d.j. He wanted to play Mahler, and Taleb does not like Mahler. “Mahler is not good for volatility,” Taleb complained. “Bach is good. St. Matthew’s Passion!” Taleb gestured toward Spitznagel, who was wearing a grey woollen turtleneck. “Look at him. He wants to be like von Karajan, like someone who wants to live in a castle. Technically superior to the rest of us. No chitchatting. Top skier. That’s Mark!” [Spitznagel] rolled his eyes.
They had the same reaction to something said by a trader who used to work at LTCM, the hedge fund that epically imploded in 1998.
“What [the LTCM trader] said was, Look, when I drive home every night in the fall I see all these leaves scattered around the base of the trees. There is a statistical distribution that governs the way they fall, and I can be pretty accurate in figuring out what that distribution is going to be. But one day I came home and the leaves were in little piles. Does that falsify my theory that there are statistical rules governing how leaves fall? No. It was a man-made event.”
That’s Spitznagel’s trading philosophy in a nutshell — preparing for the man-made events aka black swans.
His current thesis is that a huge crash is coming because we’re currently 49% above the mean “Q ratio.“
Here’s what else we know about Spitznagel.
Before working with Taleb, he was a Morgan Stanley proprietary trader (head of equity options in the Process Driven Trading group), and later he was an independent pit-trader at the Chicago Board of Trade (the youngest local in the bond pit). Then he founded Universa in 2007.
- He does yoga
- He plays piano, and the french horn
- He listens to classical music while his fund is losing money
- He wears turtlenecks, and was also spotted in a button-down blue shirt, khakis and loafers
- He watches CNBC in the office muted
- He’s a student of Austrian economist Ludwig von Mises (Here’s an op-ed he wrote in the WSJ about von Mises, “The Man Who Predicted The Crisis.”)
- Universa’s office is in Santa Monica, CA
- On how he got this way: “I was pretty much brainwashed by the age of 16 by an old grain trader who said that to be successful, you just had to know how to take a small loss as opposed to a big loss… [and] my early education as a positively skewed pit trader has given me a keen interest in any strategy with lumpy payouts.” (via a great article in Risk.net)
Did someone say lumpy payouts? Someone’s looking for a big payday like these: The greatest trades of all time >
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