A “Black Swan” investor says to guard against disasters — but take risks too.
Mark Spitznagel has built his career on protecting his clients’ portfolios against extreme, rare, and unpredictable events known as “black swans” or “tail risks.”
Yet the Universa Investments founder and chief told Business Insider over coffee in London this month that simply preparing for the worst isn’t a winning strategy in life.
Not taking enough risks can be the “biggest mistake someone makes,” Spitznagel said. “You need to be exposed, you need to bet your beliefs.”
His career advice mirrors what he says Universa offers to clients: a tail hedge that not only stops them from blowing up, but allows them to be more bullish in their bets.
Spitznagel also warned against obsessing over the power of compounding money over time.
In his 20s, Warren Buffett famously felt like he was paying $300,000 for a haircut. The legendary investor firmly believed that’s how much he could make over time if he invested the money instead of handing it to his barber.
Spitznagel said that mindset can be a “curse” because people have to live their lives: “What’s the point of compounding if you’re not around to see it?”
Stay in the game
The veteran trader, who ran a hedge fund with “The Black Swan” author Nassim Taleb before starting Universa in 2007, recommended people focus on “mitigating the big losses, not the little ones.”
“It’s not just that it kills you, but it goes down so much, it takes forever to crawl out,” he said.
He gave the example of an investor taking a 50% loss on a position, then having to make a 100% gain just to break even.
Spitznagel championed the “Kelly criterion,” a mathematical formula that can help investors correctly size their bets so they avoid catastrophic losses.
He said it’s more applicable for people to “think about their life from a Kelly standpoint, rather than just a tail-hedging standpoint.”
“You can’t let your losses take you out of the game,” he said.
Humans and goats
Writing has been one of the most common uses for AI tools like ChatGPT, but Spitznagel said he still expects the “ability to express yourself and write” to remain valuable.
The Universa boss said he employs “some of the brightest mathematicians and programmers” on the planet, and they’re on the “bleeding edge” of using AI tools.
But AI will “never replace basic human judgment,” he said. “There will always be an important place for that.”
Asked to name the best investment he’s ever made, Spitznagel pointed to his goat farm in Northport, Michigan.
He said that running a farm is “better than anything: yachts, planes, sports teams.” He emphasized the satisfaction he gets from “making something tangible,” and the pride he feels in producing goat milk and cheese.
Spitznagel also said that farming grounds him and connects him to his family, and he enjoys adapting to the different seasons and thinking in very long timeframes.
“That’s the easiest answer in the world,” he said. “It’s not even close.”
