RISK MITIGATION

Safe Haven Investing Series

INTRODUCTION
Amor Fati (The Love of One's Fate)

More than ever, investors need to optimize risk by investing in such a way that, whatever happens, they can declare, as Nietzsche exhorts, “Thus I willed it!” What better statement is there of the function of risk mitigation to an investment portfolio?
  • Mark Spitznagel

PART ONE
Not All Risk Mitigation Is Created Equal

The goal of risk mitigation is achieving an optimal protection-cost tradeoff, and this is done through an effective savings in volatility tax, or minimizing negative compounding. The tradeoff greatly favors maximal convexity.
  • Mark Spitznagel

PART TWO
Not All Risk Is Created Equal

With today’s equity valuations solidly in their upper historical quartile, risk mitigation strategies are a particularly strong value proposition. But adding very high crash convexity, specifically, takes much of the thinking and timing skill out of the decision-making process and allows for effective risk mitigation while remaining largely agnostic to potential (and even likely) systemic crises.
  • Mark Spitznagel

PART THREE
Those Wonderful Tenbaggers

Effective risk mitigation needs to be able to add value within a broad spectrum of very general and logical parameters. Observing how well our safe haven prototypes, particularly the insurance prototype, have held up under these requirements has led us once again, in a highly transparent fashion, to the ways that risk mitigation can go right and how it can go wrong, and the margin of error between the two.
  • Mark Spitznagel

PART FOUR
The Volatility Tax

The volatility tax is the hidden tax on an investment portfolio caused by the negative compounding of large investment losses. We can make progress just by being better aware of this hidden and destructive tax and the hefty costs it extracts from investment portfolios, especially in environments like the current one.
  • Mark Spitznagel

Why Do People Still Invest in Hedge Funds?

The way to gauge hedge funds’ success is through the risk mitigation value they add to a portfolio. We need to gauge their “portfolio effect”; that is, whether or not they have raised the geometric mean returns of their end users’ entire portfolios by mitigating their systematic risk. This is all that really matters in risk mitigation.
  • Mark Spitznagel