Safe Haven. Mark Spitznagel
Читать онлайн книгу.
is in the details.” And in our case, these details, while not terribly complicated, often appear counterintuitive and paradoxical. As we will see, there are emergent dynamics at play here that make cost‐effective risk mitigation extremely challenging, perhaps more so than anything else in the realm of investing. We need to proceed cautiously.
The problem is that investing is approached by most professionals and academics (and even the reigning PhD quants of modern finance) in a highly reductionist way. But, as we will see throughout this book, in safe haven investing the whole is, indeed, not the same as the sum of its parts—and it is often much greater.
Cost‐effective safe haven investing will turn out to be an awesome variation on the theme from my first book, The Dao of Capital. It's an idea that has perhaps become my shibboleth: roundabout investing. That is, the indirect approach, seeming to go backwards in order to go forwards, as in Sun Tzu's and von Clausewitz's approaches to “lose the battle to win the war.” What will look like a bad idea for one roll of the dice strangely becomes the best idea over many.
But how is successful investing possible without predictions? It sounds too good to be true. That investing is about forecasting returns is a tenet of the industry. As such, most people think they need to look very far ahead in investing and risk mitigation—with a magic crystal ball; they think that they need to see around corners. Not only is that pretty much impossible, it is actually a misconception about investing. Investing really needn't be about making grandiose forecasts, any more than it is in, say, sports or other games like poker or backgammon—though one could easily make that mistaken assumption from the outside looking in. It isn't even necessarily about getting the probabilities right. You can get the probabilities right all day but still do very poorly. It's really about getting the payoffs right. Playing good defense that leads to good offense. So there's more room for error, more room for being right, more room to get it right after getting it wrong. This is cost‐effective risk mitigation. You look and feel like you can see around corners, even though, in actuality, you can't.
As an archer, you don't try to forecast or pinpoint exactly where your arrow will hit once it leaves your bow. That would be an unproductive way to approach it—leading to target panic. Once you shoot the arrow (and even as you shoot the arrow), it is out of your control and susceptible to endless perturbations. So, instead, as in Herrigel's Zen in the Art of Archery, you aim by deliberately not taking aim—you hone your process and structure (focusing “behind the line” rather than down range) with the intent to specifically tighten your shot grouping around your target. There is this ancient Stoic notion of a dichotomy of control that applies here to investing, as it does to archery: We need to control what we can control in a way that gets us closer to our target (of higher wealth)—and certainly not further from it.
This is cost‐effective risk mitigation. You look and feel like you can see around corners and can always hit the bullseye, even though, in actuality, of course, you can't.
You see, a cost‐effective safe haven doesn't just slash risk. It actually lets you simultaneously take more risk. If that twist gave you pause for a moment, then good. It should!
FIRST PRINCIPLES
We will start here at square one with a few basic foundational truths about investing. As the great fourth‐century BCE Greek philosopher (and the world's first real scientist) Aristotle wrote, “The naturally proper direction of our road is from things better known and clearer to us,” from what he called “first principles” or “the first basis from which a thing is known.” They are what comes first, our a priori propositions or universal premises.
We start with these first principles and use them as conceptual building blocks to eventually form deductive, testable hypotheses. While these first principles may sound obvious and sort of trivial at first, they are not. In fact, they are going to become really important as we explore some counterintuitive things about a pretty technical subject. They will allow us to change and even exploit the commonly held, though false, heuristics at the core of modern finance. They will even afford us a certain existential authenticity, allowing us to make our investing consistent with what we believe—to “bet our beliefs” as they say, despite all the external pressures to conform.
Principle number one is that investing is a process that happens sequentially through time. Investing is not static. It does not occur in just one interval of time, nor in many intervals of time aggregated together as one. (Albert Einstein purportedly noted that “the only reason for time is so that everything doesn't happen at once.”) Time is the medium through which life takes place, and so it is the medium through which investing takes place. We are stretched across time. Investing and risk are a multi‐period problem; and returns are an iterative, multiplicative process. They compound: In each period, we generally invest what we are left with from the last period. Like the geometric growth of offspring across generations, we parlay our capital. This principle fundamentally determines the nature of investing and the way we need to think about and interpret returns.
But as obvious as it is, just try telling that to a hedge fund manager whose incentive fee is based on annual performance: investing happens through time. Or, deliver that message to the pension fund that is harshly judged on its ability to meet an annual benchmark over the short term rather than over a timeline consistent with its beneficiaries. And try telling that to the economics and behavioral finance communities who label behavior “irrational” when it doesn't appear optimal within their single‐period, timeless framework. Do so and you should expect funny looks. But they criticize what they can't understand; they're no Einsteins. As for us, we need to ask ourselves every day: What is the meaning of time in investing? The answer, as you'll see, changes everything.
Principle number two is that there is only one explicit purpose or goal of investing, and that is to maximize our wealth over time. Period. This is exactly what we are trying to do with every additional, incremental decision that we make as investors. It is the target we shoot at. I'm not talking about the elusive mathematical expectation of wealth, nor our wealth relative to some arbitrary benchmark (though there are plenty of managers incentivized to care only about that). Rather, I'm talking about our actual realized ending wealth—meaning the outcome we're actually left with. (They are not the same.) This is equivalent to maximizing the rate that we grow or compound wealth over time—our compound annual growth rate, or CAGR. All investors are absolute return, compounding investors. I don't believe any thinking person, and certainly not any practitioner, should disagree with this principle. It is common sense.
And yet, some would still protest that the goal of investing should be to further humanity's progress, ease its burdens, do good to consumers and the world—and the profits will follow. But this is only another way of restating our principle. The consumer is the sovereign king whom capital must serve in order to be profitable; it is because of this that capital investment and entrepreneurship have objectively done more good for the world than any government or charity ever could.
Others might still protest that the goal of investing should be to maximize our wealth, given a certain level of theoretical risk taken. (This is where things would start to get a little muddled were it not for our next principle.) Since we know that risk mitigation is investing, we can deduce that the explicit purpose of risk mitigation is the very same as the explicit purpose of investing: to maximize the rate at which we compound our wealth over time—in other words, to cost‐effectively lower risk.
This leads to principle number three: If a risk‐mitigation strategy achieves its purpose by cost‐effectively lowering a portfolio's risk, then adding that strategy raises the portfolio's CAGR over time.
It makes sense. If we mitigate risk effectively by constraining it deliberately, shouldn't the point be to experience less loss as a result, such that over time we end up making more? And if we don't end up making more, will we still be glad we did it? What would the point have been? Is there any other reason to mitigate risk?