Mark Spitznagel - Safe Haven: Investing for Financial Storms

MARK SPITZNAGEL

Copyright 2021 by Mark Spitznagel. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress CataloginginPublication Data is Available:

ISBN 9781119401797 (Hardback)

ISBN 9781119402527 (Epdf)

ISBN 9781119402510 (Epub)

Cover Design: Paul McCarthy

Cover Art: Annabelle Breake / Getty Images

Author Photo: Courtesy of the Author

I was burned out from exhaustion, buried in the hail

Poisoned in the bushes an blown out on the trail

Hunted like a crocodile, ravaged in the corn

Come in, she said, I'll give ya shelter from the storm

Bob Dylan

Nassim Nicholas Taleb

In my ancestral village in the Northern Levant, on top of a hill, stands a church dedicated to Santa Marina. Marina is a local saint, though, characteristically, some other traditions claim hersuch as Bithynia or other Anatolian provinces of the Eastern Roman Empire.

Marina grew up in a wealthy family, in the fifth century of our era. After the death of her mother, her father decided to turn his back on civil existence and embrace a life of monasticism. His aim was to spend the rest of his life in a cell carved in the rocks, in the Connubium (Qannubin) valley, at the base of Mount Lebanon, about eight miles from my village. Marina insisted on joining him and faked being a boy, Marinos.

About a decade later, after the death of her father, a visiting Roman soldier impregnated the daughter of a local innkeeper and instructed her to accuse the defenseless father Marinos of having committed the deed. The innkeeper's daughter and her family complied, fearing retaliation by the Roman soldiers.

Marina took the blameyet she did not need a tough litigator to prove her innocence. She refrained from revealing her biological gender, to remain true to her monkhood identity and what she perceived to be the holiness of her mission. So Marina was forced to raise the child, and to make penitence for an act she never committed, she lived for a decade the life of a beggar outside the walls of the monastery.

Marina faced daily contempt from her peers and the local community. Yet she stood firm, never giving into the temptation to reveal the truth.

After she died prematurely, her gender was revealed during the purification rituals. The iniquity of the accusers was exposed posthumously, and she was venerated into Greek Orthodox sainthood.

The story of Hagia Marina shows us another variety of heroism. It is one thing to commit spontaneous grandiose acts of courage, risk one's life for the sake of a grand cause, become a hero in battle, drink the hemlock for the sake of the philosophical death, become a martyr by standing tall while being maimed by lions in the Roman Coliseum. But it is much, much harder to persevere with no promise of vindication, while living the daily grind of humiliation by one's peers. Acute pain goes away; dull pain is vastly harder to bear, and vastly more heroic.

I have known Mark Spitznagel for long enough (more than two decades) to remember that he was once, briefly, a vegetarian, perhaps after reading Herman Hesse's Siddhartha in which the protagonist claims: I can think, I can wait, I can fast. My suggestion to follow the Greek Orthodox fast, where one is vegan twothirds of the year (and aggressively carnivore on the other third, mostly Sundays and holidays), failed to convince. It seemed too much of a compromise.

He finds ways to furtively inflict his musical tastes on his coworkers (Mahler, mainly, with performances by von Karajan) and in the early days, as in a ritual, the conversations used to start and end with Karl Popper and central (Black Swan) asymmetries in the scientific method. There is this insistence that we are not in the business of trading, but partaking of an intellectual enterprise, that is, both applying proper inference and probability theory to the business world and, without any modesty, improving these fields according to feedback from markets. And there is all this German terminology, such as Gedankenexperiment. I suspect that there was a nonrandom geography of origin for the authors and topics that have invade the office: prewar Vienna and its Weltanschauung.

Spitz has always been hardheaded; perhaps a good excuse is that it came with a remarkable clarity of mind. I must reveal that while I am far more diplomatic and less obstinate in person than I am in print, he is the exact reverse, though he hides it remarkably well to outsiders, say journalists and other suckers. He even managed to fool the author Malcolm Gladwell, who covered us in the New Yorker, into thinking that he would be one breaking up a fight at a bar while I would be one to initiate it.

The atmosphere of the office has been playfully unique. Visitors are usually confused by the sprawl of mathematical equations on the board, thinking our main edge is only mathematical. No. Both Mark and I were pit traders before doing quantitative stuff. While our work has been based on detecting mathematical flaws in existing finance models, our edge has been linked to having been in the pit and understanding the centrality of calibration, finetuning, execution, orderflow, and transaction costs.