The DAO of Capital | Mark Spitznagel

Summary of: The DAO of Capital: Austrian Investing in a Distorted World
By: Mark Spitznagel

Introduction

Embark on a journey into the world of Austrian investing, where patience and strategic roundabout paths lead to market success. Inspired by the ancient Chinese philosophy of Daoism and lessons from nature itself, this approach delivers a powerful paradox: you gain by losing and lose by gaining. The DAO of Capital, written by Mark Spitznagel, unveils Austrian investing’s core principles and demonstrates how they have been implemented by historical figures like Henry Ford. Get ready to discover how patience, understanding distortions, and focusing on long-term gains can enhance your investing potential.

The Wisdom Behind Austrian Investing

Austrian investing is a paradoxical philosophy rooted in the ancient Chinese concept of Daoism, where one gains by losing and vice versa. At the heart of this philosophy lies wei wuwei, which translates to “doing by not doing.” Austrian investing takes a roundabout route towards market success by pursuing immediate loss instead of immediate gain. The concept is comparable to the yielding in the Daoist martial art tuishou, where waiting and exploiting the opponent’s urgency are essential. Austrian investing profits from the impatience, intolerance of losses, and urgency of other investors while prioritizing patience. In essence, the philosophy entails loving to lose money and hating to make it. Understanding this wisdom enables investors to yield and gain a more advantageous position in the future.

The Power of Initial Setbacks in Austrian Investing

Using the examples of Robinson Crusoe and Henry Ford, this book highlights the importance of tolerating initial setbacks in Austrian investing. Crusoe’s experience of building better fishing tools, despite catching fewer fish initially, and Ford’s investment in the assembly line process, which paid off eventually, demonstrate how temporary losses can lead to future advantages. Austrian investing focuses on long-term gains over short-term losses, and the strategy requires patience and perseverance. The book emphasizes the significance of investing time, effort, and resources into research and development before expecting significant returns. The assembly line process that revolutionized automobile production and made cars affordable for the masses is a classic example of roundabout investing. The book offers practical advice on how to adopt the Austrian investment strategy by identifying opportunities for long-term gains, tolerating initial setbacks, and investing in improving productivity. Readers will learn to embrace short-term losses as a means to a profitable end and reap the benefits of Austrian investing.

Lessons from Conifers

Conifers, the oldest tree species on the planet, provide powerful lessons on the Daoist indirect path to success. By avoiding direct competition and growing slowly but surely, conifers eventually overtake the faster-growing angiosperm and become more productive. They also exemplify the wei wuwei principle of doing by not doing. Conifers grow on rocks, giving them a defensive position against competition, but they can quickly seize opportunities by freely dispersing their seeds after a wildfire. Overall, conifers show that strategic pulling back and seeding at the right moment can lead to flourishing and thriving.

Ancient Chinese and Prussian Military Philosophy

The military strategies of ancient China and nineteenth century Prussia have similarities despite being worlds apart. Sunzi by general Sun Wu and Vom Kriege by general Carl von Clausewitz are both canonical texts on war strategy in their respective regions. The Sunzi uses the Daoist indirect approach to describe a single word, shi, that means strategic value and positional advantage. Winning without fighting is the highest mark of excellence according to the Sunzi. Clausewitz’s Vom Kriege also advocates for positional advantage but uses the German words Ziel, Mittel and Zweck, to describe the approach. The immediate aims are to weaken the enemy at strategic focal points, leading to a positional advantage, which becomes the means to the end goal of winning the war. Both works have greatly influenced Western and Eastern military thinking.

The Market as Dao

The Austrian School’s view of the market as a process driven by human action, not empirical observation, distinguishes it from traditional economic theory.

Austrian investing emerged from the Austrian School of economics in Vienna in the late 19th and early 20th centuries. Ludwig von Mises, a pioneer of the school, declared that “The market is a process!”, a central tenet of Austrian investing. Market behavior is too subjective and human-driven to be considered empirical, and it can only be understood as a series of causes and effects, or what the Daoists call the “Dao”. The market’s unpredictability and elusiveness make it challenging for economists to rely on historical patterns to make predictions. Unlike the natural sciences, economics lacks the laws of human behavior that provide constancy and predictability. The market is constantly changing and cannot be studied isolated from the actions and goals of its participants. The global financial crisis of 2008 demonstrated the market’s unpredictable and chaotic nature, challenging traditional economic theories that rely on empirical observations. Understanding the market as a process driven by subjective human action can lead to new approaches to investing and a better understanding of its role in society.

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