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Mark Spitznagel

Mark Spitznagel at his place in Northport Point, Mich. (The Wall Street Journal, June 17, 2009)[1]
Born March 5, 1971 (1971-03-05) (age 38)
Unknown
Residence Los Angeles CA, Northport Point MI
Occupation Hedge Fund Manager

Mark Spitznagel (born March 5, 1971) is an American hedge fund manager and derivatives trader.

Spitznagel is the owner and Chief Investment Officer of the Santa Monica, California-based hedge fund management company Universa Investments, L.P., which he founded in early 2007[1][2][3][4][5][6][7]. Universa specializes in options trading[3][6] and has approximately $6 billion under management[1][3][5][7]. In 2009, Spitznagel closed his funds to new investors[1][7].

He has been an independent pit-trader at the Chicago Board of Trade[1][3][4][6], the head of equity options in a secretive proprietary trading group at Morgan Stanley in New York[6] (until they requested that he sign a stringent “noncompete" agreement[1]), and the head trader at hedge fund Empirica Capital LLC in Greenwich and New York[6][8]. (Empirica was reported to have made a 60% return in 2000 and lower, though unconfirmed, returns from 2001 to 2004[2][3].)

Spitznagel received an M.S. in Mathematics from the Courant Institute of Mathematical Sciences at New York University and a B.A. from Kalamazoo College in Michigan[6].

According to Malcolm Gladwell (in The New Yorker), “Spitznagel is blond and from the Midwest and does yoga. He exudes a certain laconic levelheadedness,” and “wants to be like von Karajan” (presumably because Spitznagel is an instrument-rated pilot and skier)[8].

Contents

Investor

Spitznagel's approach to trading dates to his time as a fledgling pit trader in the early 1990s at the Chicago Board of Trade, where his mentor, 50-year commodity-trading veteran Everett Klipp[9], trained him to limit losses by having him immediately exit trades as soon as they moved against him[1]. Klipp would stand beside his student in the pits, teaching his simple yet tremendously disciplined method of grabbing losses fast and letting profits ride (Klipp's saying is "You have to love to lose money and hate to make money to be successful. There's no other way.")[9].

Spitznagel is a long-time investing partner with author and financial mathematician Nassim Nicholas Taleb[7] (who was Spitznagel's partner at Empirica[6][8] and is an advisor to Spitznagel’s Universa funds[3][5][6][7]). Forbes has described their investment strategy as “bets on the fat tails…delivering a string of mediocre results interrupted occasionally by spectacular years.”[10] The Wall Street Journal has reported that “Messrs. Spitznagel and Taleb don't have an opinion about the near-term direction of the markets or economy. Rather, they argue, investors tend to underestimate the risks of major market swings.”[1]

Spitznagel claims to focus on producing strict positively-skewed investment returns[6]. He touts a “genetic flaw” whereby he is “not interested in the small frequent payouts,” but rather aims for “the infrequent huge payouts”[4]. This is in contrast to Wall Street and hedge funds which, as Spitznagel says, “manufacture returns that look steady, but in reality, all they are doing is creating a very negatively skewed distribution. They make small amounts of money very often and sometimes lose a lot. It is just a big game. In a lot of areas of finance, you can play games and look like a genius for a very, very long time simply due to luck.”[11]

Specifically, he has been critical of "managers making steady returns by buying stocks and selling cheap calls against them”[12] (the covered call, a very common negatively-skewed investment strategy) as well as the bets of Long-Term Capital Management against "once-in-a-lifetime, rule-breaking events" (or "black swans")[8].

A Wall Street Journal profile on Spitznagel describes his affinity for Taijiquan, “specifically the idea of using an opponent's force against him. Mr. Spitznagel sees similarities between the technique and his trading strategy, he says, since he believes the small losses he takes can eventually give him leverage over traders on the other side of his positions.” Spitznagel trains with a Chinese Chen style Taijiquan expert[1].

2008 Profits

In 2008, Spitznagel's Universa funds scored returns of over 100% with a bet on the volatility of the global financial meltdown[1][3][5][7][11][13], making him what The Wall Street Journal has described as “a fortune.“[1]

Spitznagel has been largely reticent on Wall Street's precipitous collapse (unlike Taleb[14]). Speaking about his trading profits from the demise of investment bank Lehman Brothers, Spitznagel told The Wall Street Journal "It's a regrettable aspect of our trade that we tend to do very well on others' misfortune."[15]

Inflation Bet

In July 2009, Spitznagel opened a fund betting on hyperinflation[1][7].

In a July 13, 2009 Financial Times column, Spitznagel and Taleb warned against excessive leverage and debt and the risks of hyperinflation from Federal Reserve debt monetization[16].

Austrian School

In a November 7, 2009 Wall Street Journal Op-Ed piece, Spitznagel extolled the views of Austrian economist Ludwig von Mises against government-induced inflationary credit expansion, and criticized those of John Maynard Keynes (and Greenspan et al.). “Government expansion of credit [Spitznagel’s term is ‘credit gavage’] takes a system otherwise capable of adjustment and resilience and transforms it into…a brittle one.”[17]

Personal

Spitznagel keeps homes in the Bel Air section of Los Angeles (in the former estate of Jennifer Lopez) and in Northport Point, Michigan.[18]

Publications

References

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