Wednesday, March 7, 2012

Nassim Nicholas Taleb and a Major Hedge Fund Trader to Attend Los Angeles Ron Paul Fund Raiser

KPCC radio in Los Angeles reports:
Ron Paul — Republican presidential candidate, GOP congressman from Texas, father of Sen. Rand Paul, libertarian, and dogged foe of the Federal Reserve — is touching down in Los Angeles on March 20 for a fundraiser. If you think Paul, with his desire to return the U.S. to the gold standard (bimetalism, actually, using gold and silver) and his tendency to subject Fed Chairman Ben Bernanke to lengthy disquisitions on inflation, is a litle bit different, just wait until you get a dose of the guy who's hosting this Bel Air shindig, at the former residence of Jennifer Lopez.

He's Mark Spitznagel, a very successful hedge-fund manager whose Universa Investments is based in Santa Monica. There are hedge-fund managers and there are hedge fund managers. Spitznagel is definitely in the latter category. He plies his trade in an exotic corner of the industry, making huge bets on statistically improbable events, now colloquially known as "black swans," after the 2007 book of the that title by Nassim Taleb.

Taleb and Spitznagel were partners is a previous fund that was organized along the same lines. Their ultra-contrary mantra was to lose money on most of their bets, but win big when that black swan came along — both by profiting from negative positions and by buying up assets on the cheap once the financial earthquake had occurred.

Taleb is out of the business now (he'll also be appearing at Paul's L.A. fundraiser, however), but Spitznagel is very much still in it...

Spitznagel considers himself a kind of inverse Warren Buffett, a "value investor" who unlocks unforeseen value embedded in rare and often disastrous phenomena. If that sounds thoroughly out-there, then consider his preferred term for his investment technique: "time arbitrage." Kind of makes him sound like the Dr. Who of hedge funds.

Beyond all this esoteric moneymaking — which obviously does work, or at least has worked, although whether it's truly "black swan" investing is debatable — Spitzanagel is an enthusiast of the Austrian School of economics. This is where the Ron Paul connection comes in. But Spitznagel goes well beyond being an eccentric rich guy who dabbles in the sort of economic thinking that Paul spouts on the stump.


  1. When reduced to its essence, speculating for capital gain is "time arbitrage," A.K.A. market-timing. Speculating is an attempt to capitalize ones investment through the marginal market transactions of other participants.

    In essence, the speculator forecasts changes in other market participants inter-temporal allocation(s) of capital and positions their own capital at a certain point in "time" to benefit from the other participants allocation changes that is expected to occur at a future point or points in "time." Once the "time change" (literally and figuratively/temporally speaking) has occurred and has done so in favor of the speculator's forecast and positioning, the speculator dispositions all or a portion of their asset-holding(s) at a capital gain.

  2. Interesting article, I like Mr. Spitznagel's investing strategy. The risks of dramatic financial crises is definitely not properly priced in the market, so there should be opportunity to make lots of profit from these so-called "black swan" events.

    The author, though, is clueless about economics. Ron Paul is surely not in favor of bimetalism, which means fixing the ratio of silver/gold, and is another form of government manipulation of money.