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Safe Haven: Investing for Financial Storms
What is a safe haven? What role should they play in an investment portfolio? Do we use them only to seek shelter until the passing of financial storms? Or are they something more? Contrary to everything we know from modern financial theory, can higher returns actually come as a result of lowering risk? In Safe Haven , hedge fund manager Mark Spitznagel―one of the top practitioners of safe haven investing and portfolio risk mitigation in the world―answers these questions and more. Investors who heed the message in this book will never look at risk mitigation the same way again.
240 pages, Paperback
Published October 10, 2023
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August 24, 2021
The book contains unique and practical information for long-term investors. Probably, short-term traders will find it interesting too. However, its writing style is terrible. I got the impression that the author is deliberately mocking his readers.
This book is by no means an investment book for dummies. To benefit from it, you need to have significant knowledge and experience beforehand: options, Gaussian statistics, diversification and its shortcomings, the Kelly criterion, and understand nonparametric (bootstrap) statistics. This book is meant for people who have pondered a lot about getting a high risk-adjusted return on investment. You'll grab several ideas about how to preserve good sleep while being exposed to risky markets.
The author tries to convince you that you should have some OTM put options in the portfolio. Those options serve as insurance against tail risk events. Before examining the book 'Safe Haven Investing,' I did not understand why people buy those expensive options. From now on, I will not only sell but also buy them under favorable conditions. The book changed my beliefs regarding investment and portfolio management. I find its ideas to be unique, very important, and utilitarian.
However, the book does not provide any specific guidance on which options to use. Several years ago, Mark Spitznagel and his colleagues released a paper "Capital Asset Pricing Mistakes." It contains practical recommendations. That document is available online, but there is no link to it in the book. The author tried very hard not to make life easier for his readers accidentally.
The book's language is heavy. Numerous giants of world philosophy, mathematics, and other sciences are mentioned in vain. You will have to wade through many details from their lives that are in no way related to investment and portfolio management. The volume of the book could be reduced at least four times without loss of information. My hands are itching to write a summary of 40-50 pages. Maybe I will do it later.
This book is by no means an investment book for dummies. To benefit from it, you need to have significant knowledge and experience beforehand: options, Gaussian statistics, diversification and its shortcomings, the Kelly criterion, and understand nonparametric (bootstrap) statistics. This book is meant for people who have pondered a lot about getting a high risk-adjusted return on investment. You'll grab several ideas about how to preserve good sleep while being exposed to risky markets.
The author tries to convince you that you should have some OTM put options in the portfolio. Those options serve as insurance against tail risk events. Before examining the book 'Safe Haven Investing,' I did not understand why people buy those expensive options. From now on, I will not only sell but also buy them under favorable conditions. The book changed my beliefs regarding investment and portfolio management. I find its ideas to be unique, very important, and utilitarian.
However, the book does not provide any specific guidance on which options to use. Several years ago, Mark Spitznagel and his colleagues released a paper "Capital Asset Pricing Mistakes." It contains practical recommendations. That document is available online, but there is no link to it in the book. The author tried very hard not to make life easier for his readers accidentally.
The book's language is heavy. Numerous giants of world philosophy, mathematics, and other sciences are mentioned in vain. You will have to wade through many details from their lives that are in no way related to investment and portfolio management. The volume of the book could be reduced at least four times without loss of information. My hands are itching to write a summary of 40-50 pages. Maybe I will do it later.
December 5, 2021
This book was mentioned a couple times at #RWRI16. I'm probably slightly the wrong audience for it: I'm not a full-time investor, nor do I have the time to be a full-time investor. There were some really interesting ideas in the book (I love exploring risk asymmetry), but I'm not sure how to apply what I learned (or if I will). The book also suffered a few problems.
The key idea in the book: cost-effective risk mitigation. How do you mitigate the risk of market crashes and protect your capital/portfolio?
Spitznagel takes a page from Nassim Taleb (who wrote the foreword) and happily tears apart most economists, financial professionals, and Modern Portfolio Theory (MPT) which he shows is ineffective at managing risk through diversification.
Basically (and this is probably far too condensed a summary): your life and your investing decisions are a sample size of n=1, and "the value of getting this [i.e., your] path right eclipses the value of getting the expected path right" (p61). MPT thinks in expected averages and aggregates, but you can't afford an "expected average" return if some of the individuals that make up the average fail horribly!
Some of the ideas I got a better handle on are expected averages (MPT) vs. geometric averages. A geometric average "maps and tracks the evolution of your capital base through time, something which is lost within the arithmetic average" (p77). Spitznagel lays out the Kelly criterion in a way where it seemed to click for me (but ask me a few months from now...). It's maximizing the geometric average of ending wealth (i.e. the end result of capital and investing decisions over time), even at the expense of the arithmetic average (p80).
So how do you mitigate risk in your portfolio? If you're looking for the "how-to"... buy a different book, Spitznagel tells us on p4. This is a "why-to" and a "why-not-to". If you are looking for quick tips, or really specific actionable recommendations, you will NOT find them here.
The reader is told that cost-effective risk mitigation is very difficult, as "safe [investing] havens" are moving targets. Essentially: these safe havens are portfolio insurance, that will generate an outsized (think: many hundreds of percent, or more) return if the bulk of your invested capital goes down. In practice, this would be options (puts/calls) and other derivatives, but Spitznagel does not use any of those terms in the book at all.
Spitznagel likely doesn't get into specific actions for a few reasons: safe havens are constantly changing, not wanting to give away the secret sauce at Universa Investments, and preventing boneheads like me from wasting a bunch of money on portfolio insurance that is not cost-effective. (I could buy deep OTM for the rest of my days and it's highly likely it would be a total waste of fees and premiums and also fail to pay off in a crash). It was interesting at RWRI16 how people were discouraged from building these types of portfolio insurance (playing with options) themselves.
Favourite quote: "Profit is finite. Risk is infinite." (p56)
Biggest complaints: There was something intangible about the writing that failed to really draw me in. Also, the formatting was awful: bolding, italicizing, and bold-italicizing were WAY overused to the point it was meaningless. Probably best to read on Kindle so you can minimize how distracting this is. Fortunately both of these complaints are mitigated by the book's short length (200 pgs).
The key idea in the book: cost-effective risk mitigation. How do you mitigate the risk of market crashes and protect your capital/portfolio?
Spitznagel takes a page from Nassim Taleb (who wrote the foreword) and happily tears apart most economists, financial professionals, and Modern Portfolio Theory (MPT) which he shows is ineffective at managing risk through diversification.
Basically (and this is probably far too condensed a summary): your life and your investing decisions are a sample size of n=1, and "the value of getting this [i.e., your] path right eclipses the value of getting the expected path right" (p61). MPT thinks in expected averages and aggregates, but you can't afford an "expected average" return if some of the individuals that make up the average fail horribly!
Some of the ideas I got a better handle on are expected averages (MPT) vs. geometric averages. A geometric average "maps and tracks the evolution of your capital base through time, something which is lost within the arithmetic average" (p77). Spitznagel lays out the Kelly criterion in a way where it seemed to click for me (but ask me a few months from now...). It's maximizing the geometric average of ending wealth (i.e. the end result of capital and investing decisions over time), even at the expense of the arithmetic average (p80).
So how do you mitigate risk in your portfolio? If you're looking for the "how-to"... buy a different book, Spitznagel tells us on p4. This is a "why-to" and a "why-not-to". If you are looking for quick tips, or really specific actionable recommendations, you will NOT find them here.
The reader is told that cost-effective risk mitigation is very difficult, as "safe [investing] havens" are moving targets. Essentially: these safe havens are portfolio insurance, that will generate an outsized (think: many hundreds of percent, or more) return if the bulk of your invested capital goes down. In practice, this would be options (puts/calls) and other derivatives, but Spitznagel does not use any of those terms in the book at all.
Spitznagel likely doesn't get into specific actions for a few reasons: safe havens are constantly changing, not wanting to give away the secret sauce at Universa Investments, and preventing boneheads like me from wasting a bunch of money on portfolio insurance that is not cost-effective. (I could buy deep OTM for the rest of my days and it's highly likely it would be a total waste of fees and premiums and also fail to pay off in a crash). It was interesting at RWRI16 how people were discouraged from building these types of portfolio insurance (playing with options) themselves.
Favourite quote: "Profit is finite. Risk is infinite." (p56)
Biggest complaints: There was something intangible about the writing that failed to really draw me in. Also, the formatting was awful: bolding, italicizing, and bold-italicizing were WAY overused to the point it was meaningless. Probably best to read on Kindle so you can minimize how distracting this is. Fortunately both of these complaints are mitigated by the book's short length (200 pgs).
November 4, 2021
Spitz gets a lot of flack for not making specific recommendations. This bothers me on two levels. First, you cannot make specific recommendations in a book. By the time it's published they're irrelevant. Second, why would he give free advice to people when his clients pay 2 and 20 for it?
That said, this book is for people who want to take investing to the next level. I would suggest a minimum of 3-5 years active options trading experience before you write him off.
To use his method you have to...
1) Understand the math behind fat tails. (It's actually simple)
2) Know when options may be underpriced.
3) Understand duration.
and finally, be ready to write off to zero 10% of your portfolio.
To make money on fat tail investments you have to be right when everyone else is wrong. If everybody knows what you know, the options will be too expensive to get the 50X return you need as a risk management tool.
For example right now (Nov 2021) both gold and junk bonds are valued absurdly. Keep in mind, most of the market is absurd, but these are absurd to the nth degree. So a portfolio long FANG and long gold share calls going out to 2023 as well as a out of the money JNK put would be a portfolio with a chance of survival.
Spiznageel tell you how to structure a hypothetical portfolio in terms of a gaussian distribution.
This is as good as it gets.
www.gig2big.com
That said, this book is for people who want to take investing to the next level. I would suggest a minimum of 3-5 years active options trading experience before you write him off.
To use his method you have to...
1) Understand the math behind fat tails. (It's actually simple)
2) Know when options may be underpriced.
3) Understand duration.
and finally, be ready to write off to zero 10% of your portfolio.
To make money on fat tail investments you have to be right when everyone else is wrong. If everybody knows what you know, the options will be too expensive to get the 50X return you need as a risk management tool.
For example right now (Nov 2021) both gold and junk bonds are valued absurdly. Keep in mind, most of the market is absurd, but these are absurd to the nth degree. So a portfolio long FANG and long gold share calls going out to 2023 as well as a out of the money JNK put would be a portfolio with a chance of survival.
Spiznageel tell you how to structure a hypothetical portfolio in terms of a gaussian distribution.
This is as good as it gets.
www.gig2big.com
December 6, 2021
Similar to Benoit Mandelbrot's The (Mis)Behavior of Markets, this book caused a paradigm shift in my understanding of risk and risk mitigation. It would be irrational to expect a veteran hedge fund strategist to share his secret sauce for 20 bucks, and to some extent Spitznagel gives you more bang for the buck by simply opening your mind to the core tenets of his investment philosophy.
For if you can't develop your own tail hedging strategy using all of the pointers in this book as a jump off point, you most likely would fail miserably implementing whatever generic option-based strategy cook-book Spitznagel could have given you. As will probably be many other readers, I for one am content to better understand the "risks" of being unhedged as well as understand the costs I would incur hedging my portfolio haphazardly.
Some of my favorite quotes in this book include:
"...Bernoulli inadvertently revealed the geometric average as the optimal criterion for valuing those risky gambles. Arithmetic returns are false hopes; the truth lies in geometric returns."
and:
"Profit is finite. Risk is infinite. You need to avoid plunging down the logarithmic Bernoulli Falls! This is, by far, the most important concept in safe haven investing—nay, of all investing."
as well as:
"It’s like a pinch of salt—just a pinch becomes the most important ingredient to the dish, whereas more than a pinch ruins it."
and finally:
"And let’s always remember that great twist of safe haven investing, that a cost-effective safe haven is not about slashing risk. To the contrary, we mitigate risk deliberately so that we can do more, not do less."
Amor fati.
For if you can't develop your own tail hedging strategy using all of the pointers in this book as a jump off point, you most likely would fail miserably implementing whatever generic option-based strategy cook-book Spitznagel could have given you. As will probably be many other readers, I for one am content to better understand the "risks" of being unhedged as well as understand the costs I would incur hedging my portfolio haphazardly.
Some of my favorite quotes in this book include:
"...Bernoulli inadvertently revealed the geometric average as the optimal criterion for valuing those risky gambles. Arithmetic returns are false hopes; the truth lies in geometric returns."
and:
"Profit is finite. Risk is infinite. You need to avoid plunging down the logarithmic Bernoulli Falls! This is, by far, the most important concept in safe haven investing—nay, of all investing."
as well as:
"It’s like a pinch of salt—just a pinch becomes the most important ingredient to the dish, whereas more than a pinch ruins it."
and finally:
"And let’s always remember that great twist of safe haven investing, that a cost-effective safe haven is not about slashing risk. To the contrary, we mitigate risk deliberately so that we can do more, not do less."
Amor fati.
September 20, 2021
Loved The DAO of Capital, and he's done it again! Only this time, with far more technical and mathematical detail, which I appreciate. This guy's quoting Feynman, Nietzsche, Popper, Newton, weaving this cohesive vision of scientific thinking into his particular niche profession, investing. I could care less about investing, but I love that there are intellectuals out there who really synthesize what they read and turn what normal people might find a boring subject into something that excites the imagination.
His whole thesis could be summed up by saying "All models are wrong, but some are useful." So why are we clinging to financial models that consistently lead us astray time and time again? Tradition? Any idiot can code up a Monte Carlo simulation and quickly confirm these little scenarios. Traditional models work sometimes, even most of the time, but they are built upon the shaky foundation of bad assumptions that have a tendency to prove themselves wrong from time to time. And when that foundation cracks, the whole house falls down, no matter how strong and pretty it was on merit.
His whole thesis could be summed up by saying "All models are wrong, but some are useful." So why are we clinging to financial models that consistently lead us astray time and time again? Tradition? Any idiot can code up a Monte Carlo simulation and quickly confirm these little scenarios. Traditional models work sometimes, even most of the time, but they are built upon the shaky foundation of bad assumptions that have a tendency to prove themselves wrong from time to time. And when that foundation cracks, the whole house falls down, no matter how strong and pretty it was on merit.
January 12, 2023
Fool me once, shame on you. Fool me twice, shame on me.
After reading the disaster that is “The Dao of Capital” I figured this book would be much better (I enjoy mark’s investing philosophy and want to learn more). Wow was I wrong.
This book was written strictly for the sake of writing another book and it shows. Add in Nassim Taleb’s nonsense at the beginning and you have a perfect disaster parading as an all time classic.
After reading the disaster that is “The Dao of Capital” I figured this book would be much better (I enjoy mark’s investing philosophy and want to learn more). Wow was I wrong.
This book was written strictly for the sake of writing another book and it shows. Add in Nassim Taleb’s nonsense at the beginning and you have a perfect disaster parading as an all time classic.
August 27, 2021
The premise is that in our search of risk mitigation we must have a cost effective strategy because it is actually the best performing one. There are (I guess) some assets that provide that, but don’t expect to learn who they are in this book. What value you can draw from this is an approach to asset evaluation and some quick analysis in the end showing that Tbills, gold and crypto aint it.
Read
October 17, 2021Amor Fati
November 6, 2021
I really appreciate that this book doesn't tell you what to do, but rather encourages you to think through problems yourself.
Read
December 28, 2024Safe Haven is a short book that makes some excellent investment points based on Spitznagel's own experience, and its concepts are supported in a scientific manner. I found it a tough book to read because the text isn't as clear and direct as it could be - and much of this is a fault of editing, rather than the author's drafting in my opinion.
Safe Haven is about helping you developing a discipline in investing and is not a "what-to invest in" book. While there are no investment recommendations (just a way to look at how you go about investing), the concept of insurance does float to the top frequently.
Spitznagel weaves in some mathematicians (the Bernoulli family, Shannon), scientists (e.g., Feynman) and philosophers (e.g., Popper & Nietzsche), and some other investor visionaries (e.g., Thorpe) which are interesting and helpful as he introduces concepts.
Much of the discussion is autobiographical and I enjoyed getting to know a bit of Mark as a boy (horn playing), as a father, his dogs, and his colleagues (and Mahler). Sometimes, I think his colloquialisms are localized to his close work associates and sometimes maybe localized to his own head (and now you know a bit how Mark thinks).
The text repeatedly alludes back to these people and times, making me want to progressively skim the material in order to get to Mark's new concepts faster. (Again, better editing could help.)
Mark's research underpinning the book, both in history and in modeling, are weighty. How to read the diagrams is written in the book, and those explanations are not always clear and are not referentially easy to find, so you might want to highlight them yourself. (If ever there's a 2nd edition, then these explanations should be in boxes or italics rather than sandwiched in anecdotes.)
Many bits of the text are in bold, and usually for no obvious reason as those statements are not necessarily summaries, maxims, or conclusions. I found myself highlighting key concepts, and those highlights almost never coincided with the bold text.
Moving past the editing and formatting, and focusing on the concepts, my summary would be:
1. In the end, you depend on your investment's compound annual growth (CAGR), so include this as a key metric.
2. Minimizing (or eliminating) downside performance is important to raising CAGR.
3. Compare the effectiveness of downside risk mitigation strategies. You want the highest increase in CAGR for the lowest cost at the same level of risk, and this should outperform just owning the S&P 500 Index, SPX.
4. Strategies that have worked in the past may not continue working. Specifically, while USTs and gold have mostly been effective, there are long periods of times when they did not.
5. Mark compares these to buying insurance.
If I understood what Mark wrote about buying insurance correctly, a central strategy Mark discusses is spending 2-to-3% per year of a portfolio value on insurance that has a large payoff when the SPX has more than a 15% drop. Mark shows that this insurance improved the portfolio CAGR while reducing the annual return by about 0.2%. <-- not investment advice.
Let me know what you think.
Safe Haven is about helping you developing a discipline in investing and is not a "what-to invest in" book. While there are no investment recommendations (just a way to look at how you go about investing), the concept of insurance does float to the top frequently.
Spitznagel weaves in some mathematicians (the Bernoulli family, Shannon), scientists (e.g., Feynman) and philosophers (e.g., Popper & Nietzsche), and some other investor visionaries (e.g., Thorpe) which are interesting and helpful as he introduces concepts.
Much of the discussion is autobiographical and I enjoyed getting to know a bit of Mark as a boy (horn playing), as a father, his dogs, and his colleagues (and Mahler). Sometimes, I think his colloquialisms are localized to his close work associates and sometimes maybe localized to his own head (and now you know a bit how Mark thinks).
The text repeatedly alludes back to these people and times, making me want to progressively skim the material in order to get to Mark's new concepts faster. (Again, better editing could help.)
Mark's research underpinning the book, both in history and in modeling, are weighty. How to read the diagrams is written in the book, and those explanations are not always clear and are not referentially easy to find, so you might want to highlight them yourself. (If ever there's a 2nd edition, then these explanations should be in boxes or italics rather than sandwiched in anecdotes.)
Many bits of the text are in bold, and usually for no obvious reason as those statements are not necessarily summaries, maxims, or conclusions. I found myself highlighting key concepts, and those highlights almost never coincided with the bold text.
Moving past the editing and formatting, and focusing on the concepts, my summary would be:
1. In the end, you depend on your investment's compound annual growth (CAGR), so include this as a key metric.
2. Minimizing (or eliminating) downside performance is important to raising CAGR.
3. Compare the effectiveness of downside risk mitigation strategies. You want the highest increase in CAGR for the lowest cost at the same level of risk, and this should outperform just owning the S&P 500 Index, SPX.
4. Strategies that have worked in the past may not continue working. Specifically, while USTs and gold have mostly been effective, there are long periods of times when they did not.
5. Mark compares these to buying insurance.
If I understood what Mark wrote about buying insurance correctly, a central strategy Mark discusses is spending 2-to-3% per year of a portfolio value on insurance that has a large payoff when the SPX has more than a 15% drop. Mark shows that this insurance improved the portfolio CAGR while reducing the annual return by about 0.2%. <-- not investment advice.
Let me know what you think.
December 1, 2021
Excellent book. Much better than his predecessor book as it is far more succinct. He explores the seemingly arcane difference between arithmetic and geometric averages in the context of portfolios and shows that simplistic arithmetic thinking is hugely damaging and that we must think geometrically.
For example if you have 24 years where you make 10% and one year where you make -100% you have an average return of 5.6%. However, if you look at the geometric average, the actual average that you will receive when you invest over those 25 years, no matter when the -100% return occurs you will have a -100% return. So its important to think in geometric terms.
He then goes on to examine a series of safe haven investments that are either mechanically orientated to pay off when the S&P declines by 15% or statistically likely to do so based on historical experience. He does not leave you with a solution unfortunately but provides a very solid framework for those reasonably adept at maths to be able to think about portfolio construction.
Thoroughly recommended for any concerned with their long-term wealth.
For example if you have 24 years where you make 10% and one year where you make -100% you have an average return of 5.6%. However, if you look at the geometric average, the actual average that you will receive when you invest over those 25 years, no matter when the -100% return occurs you will have a -100% return. So its important to think in geometric terms.
He then goes on to examine a series of safe haven investments that are either mechanically orientated to pay off when the S&P declines by 15% or statistically likely to do so based on historical experience. He does not leave you with a solution unfortunately but provides a very solid framework for those reasonably adept at maths to be able to think about portfolio construction.
Thoroughly recommended for any concerned with their long-term wealth.
June 21, 2022
The core idea is fascinating. Investors tend to think about arithmetic averages as the relevant measure for expected portfolio returns, but in more extreme probability distributions (Extremistan to make the Taleb link) that would lead you to silly conclusions.
Say you throw a coin: heads triples your investment, while tails wipes it entirely. Expected value of each game: 50% gains. Will you play this game with your entire net worth? Likely not. The reason is that the all-heads path is an increasingly narrow band in a vast spectrum of outcomes, mostly leading to zero. Clearly we actually care about the geometric average - the mode of the distribution of outcomes - in this case a neat zero.
Taking that geometric assumption and running with it, we can start to burn down some of the basic tenets of financial theory. It becomes possible to add an asset with a lower expected return than the (arithmetic) portfolio average and yet push up the portfolio's (geometric) return. Think of an insurance product which has shabby returns, but really comes to the fore when the rest of the portfolio crashes. Likewise in the above example with our coin, you could hold much of your assets in cash and decide on how much to gamble in each game by using the Kelly Criterion. Have we found a safe haven? Risk mitigation: not as a tradeoff but as additive to wealth creation. Yes, there is arithmetic cost, but at geometric benefit. We then consider some different types of safe havens - insurance comes out as a clear leader vs uncorrelated (store of value) or negative correlation (alpha) assets as insurance only spoils a small chunk of the arithmetic portfolio return. An interesting reference too to some red herrings - pretender safe havens - steer clear of diworsifier havens ("losing less".
This book was helpful in developing my thinking on investment, though it clearly has its roots in derivatives trading and not all lessons carry over neatly to the world of equities where in the long run business returns ought to dominate market movements. Financial markets are not dice-throwing games. Nevertheless, n=1, we live in a non-ergodic world. This book has pointed me to the idea that there are really two ways of going about equity portfolio construction - one is to go full in on an arithmetic approach - choose high conviction ideas in concentrated portfolios and sit through hurtful ups and downs - the other is to implement some of the safe haven approach and go for a smoother ride. If a managers is effectively trying to do the second, they might want to take heed of some of the lessons here.
Why only 3 stars? I don't think it is very well-written. My own background primed me relatively well for the book, but I would not recommend to a general audience. Spitznagel makes little effort to explain what actual safe havens he uses. Yes, that might send people down a dangerous path, but it is really not that hard to write a few pages on deep OTM put options, how they work and why some may be well-placed as insurance, at least historically. For me there is an element of arrogance and pomp in the book as well - leading to these kinds of omissions. While some of the many references to scientists and philosophers make perfect sense, it does get a bit dense and I don't think this has to be the nature of the subject matter.
Say you throw a coin: heads triples your investment, while tails wipes it entirely. Expected value of each game: 50% gains. Will you play this game with your entire net worth? Likely not. The reason is that the all-heads path is an increasingly narrow band in a vast spectrum of outcomes, mostly leading to zero. Clearly we actually care about the geometric average - the mode of the distribution of outcomes - in this case a neat zero.
Taking that geometric assumption and running with it, we can start to burn down some of the basic tenets of financial theory. It becomes possible to add an asset with a lower expected return than the (arithmetic) portfolio average and yet push up the portfolio's (geometric) return. Think of an insurance product which has shabby returns, but really comes to the fore when the rest of the portfolio crashes. Likewise in the above example with our coin, you could hold much of your assets in cash and decide on how much to gamble in each game by using the Kelly Criterion. Have we found a safe haven? Risk mitigation: not as a tradeoff but as additive to wealth creation. Yes, there is arithmetic cost, but at geometric benefit. We then consider some different types of safe havens - insurance comes out as a clear leader vs uncorrelated (store of value) or negative correlation (alpha) assets as insurance only spoils a small chunk of the arithmetic portfolio return. An interesting reference too to some red herrings - pretender safe havens - steer clear of diworsifier havens ("losing less".
This book was helpful in developing my thinking on investment, though it clearly has its roots in derivatives trading and not all lessons carry over neatly to the world of equities where in the long run business returns ought to dominate market movements. Financial markets are not dice-throwing games. Nevertheless, n=1, we live in a non-ergodic world. This book has pointed me to the idea that there are really two ways of going about equity portfolio construction - one is to go full in on an arithmetic approach - choose high conviction ideas in concentrated portfolios and sit through hurtful ups and downs - the other is to implement some of the safe haven approach and go for a smoother ride. If a managers is effectively trying to do the second, they might want to take heed of some of the lessons here.
Why only 3 stars? I don't think it is very well-written. My own background primed me relatively well for the book, but I would not recommend to a general audience. Spitznagel makes little effort to explain what actual safe havens he uses. Yes, that might send people down a dangerous path, but it is really not that hard to write a few pages on deep OTM put options, how they work and why some may be well-placed as insurance, at least historically. For me there is an element of arrogance and pomp in the book as well - leading to these kinds of omissions. While some of the many references to scientists and philosophers make perfect sense, it does get a bit dense and I don't think this has to be the nature of the subject matter.
January 3, 2025
"Life isn't about waiting for the storm to pass. It's about learning to dance in the rain."
I had read the book Chaos Kings, written by Scott Patterson last year and in that book, he had given an account of fund manager and traders who thrive during market chaos and crashes, as they position themselves (and their portfolios) to capitalize upon tail risk events, which are commonly referred to as a Black Swan. The book primarily covered the story of Mark Spitznagel, who started as a commodity trader in Chicago and then worked with Nassim Nicholas Taleb on one of the earliest funds using tail risk hedging strategies called Empirica before launching his own fund named Universa, that gained fame (and earned billions) during the COVID 19 crash. Scott introduced Mark’s book titled “Safe Haven: Investing for Financial Storms” in which Mark explains the theoretical and empirical framework of his investment strategy and philosophy.
Mark Spitznagel has explained the role and impact of safe haven strategies in a portfolio. Mark's ideas are counterintuitive, and the book is all about Risk Mitigation strategies. He explains what a risk-mitigating asset is and sets out the framework for how such an asset can both reduce risk and increase returns, which is contrary to conventional wisdom. He has grouped safe havens as a) Store of Value strategies, b) Alpha strategies and c) Insurance strategies. He has kept the discussion very theoretical in terms of examples and strategies - I guess he did not want to divulge trade secrets. In his own words, Safe Haven is not a “how to” book. Instead, it’s a “why-to” book, or better yet a “why-not-to” book.
Mark has referred to the works of some great mathematicians and philosophers from the past. Daniel Bernoulli, John Kelly, Friedrich Nietzsche and Karl Popper have been mentioned multiple times. His key message is to insure your portfolio when it pays to do so. Insurance costs the least during bull markets, when everyone is hyperconfident and it becomes expensive during bear markets, where everyone is rushing for an exit or looking for an umbrella. In the last chapter, he has evaluated the performance of some assets that are commonly considered a safe haven.
While some would term his writing style “dry and dull”, I found it witty and catchy. The learnings from the book are worth the time and effort. A must read for people with interest in financial markets, probability theory, returns distribution, decision making under uncertainty and risk management.
I had read the book Chaos Kings, written by Scott Patterson last year and in that book, he had given an account of fund manager and traders who thrive during market chaos and crashes, as they position themselves (and their portfolios) to capitalize upon tail risk events, which are commonly referred to as a Black Swan. The book primarily covered the story of Mark Spitznagel, who started as a commodity trader in Chicago and then worked with Nassim Nicholas Taleb on one of the earliest funds using tail risk hedging strategies called Empirica before launching his own fund named Universa, that gained fame (and earned billions) during the COVID 19 crash. Scott introduced Mark’s book titled “Safe Haven: Investing for Financial Storms” in which Mark explains the theoretical and empirical framework of his investment strategy and philosophy.
Mark Spitznagel has explained the role and impact of safe haven strategies in a portfolio. Mark's ideas are counterintuitive, and the book is all about Risk Mitigation strategies. He explains what a risk-mitigating asset is and sets out the framework for how such an asset can both reduce risk and increase returns, which is contrary to conventional wisdom. He has grouped safe havens as a) Store of Value strategies, b) Alpha strategies and c) Insurance strategies. He has kept the discussion very theoretical in terms of examples and strategies - I guess he did not want to divulge trade secrets. In his own words, Safe Haven is not a “how to” book. Instead, it’s a “why-to” book, or better yet a “why-not-to” book.
Mark has referred to the works of some great mathematicians and philosophers from the past. Daniel Bernoulli, John Kelly, Friedrich Nietzsche and Karl Popper have been mentioned multiple times. His key message is to insure your portfolio when it pays to do so. Insurance costs the least during bull markets, when everyone is hyperconfident and it becomes expensive during bear markets, where everyone is rushing for an exit or looking for an umbrella. In the last chapter, he has evaluated the performance of some assets that are commonly considered a safe haven.
While some would term his writing style “dry and dull”, I found it witty and catchy. The learnings from the book are worth the time and effort. A must read for people with interest in financial markets, probability theory, returns distribution, decision making under uncertainty and risk management.
August 8, 2025
Safe Haven: Investing for Financial Storms masterfully disguises itself as an investment book, but it's far more profound. At its heart, it's a philosophical treatise on the power of insurance, risk, and thinking correctly about time. The author, who has veritable skin in the game as part of the firm Universa, takes you on a journey from the mathematicians of the Bernoulli family to the philosophy of Nietzsche to build an ironclad case for a specific kind of portfolio protection. The book constructs a powerful argument for using a small part of one's assets as a "safe haven" that explodes in value during black swan events, while simultaneously demonstrating why most conventional approaches to risk mitigation are deeply flawed.
Here are the pivotal ideas and concepts I gathered from this exceptional book:
The Philosopher's Wager: One Life or a Multiverse of Trials?
The book's entire thesis rests on a fascinating philosophical conflict. On one side, we have Friedrich Nietzsche's idea of the eternal return. He argued we have only one life, a single path that we will repeat for eternity. In his view, our sample space is N=1. This forces us to ask of any decision: would I do this if it were the only path I'll ever have, repeated forever?
On the other side is the quantum idea, which the book associates with Schopenhauer and Schrodinger, of infinite multiverses where all possible paths unfold simultaneously. This is the world of frequentist statistics, where we have infinite trials to base our calculations on.
This brings us to the core problem in finance: Ergodicity. A system is ergodic when the average result of the group is the same as the long-term result for the individual. The book’s central claim is that financial markets are fundamentally non-ergodic. You don't get the average outcome of all possible paths; you only get your specific path.
To illustrate this, the book introduces a bet with the devil: out of six outcomes, four result in a 5% gain, while two result in a 50% loss. In the multiverse view, the arithmetic average is a positive 3.33%. But in the real world of Nietzsche's devil, where you only live your one path, most outcomes lead to you losing most of your wealth. You will, most of the time, go bust.
The Right Tools: Logarithms and Geometric Averages
The book argues that since the 18th century, we've had the tools to solve this. Daniel Bernoulli, faced with a similar paradox of a coin flip with an infinite expected value, realized that the arithmetic average doesn't apply to these kinds of power-law distributions. His solution was Expected Utility Theory, which intuits that the value of money is relative to the wealth one already possesses.
The continuous version of this function is the Logarithm. This mathematical tool has two properties vital for investing:
Any zero will lead to zero overall. As a logarithm approaches zero, its value goes to minus infinity, representing total ruin from which there is no recovery.
As you have more wealth, higher gains have lower utility. The joy of earning a million dollars is much greater when you have nothing than when you're already a billionaire.
This thinking leads us to the Geometric Average, which uses multiplication instead of addition. According to the author, this should be the primary tool for market bets for several reasons:
Wealth compounds, so losses are worse than they appear because you also lose future compounding growth. A 20% loss is mathematically more than twice as bad as a 10% loss over time.
If your wealth goes to zero, the expected value is always zero.
Returns should be dependent on your starting wealth, as marginal utility decreases.
The "Merchant Problem" perfectly captures this. A merchant who insures his ships is accepting a small, certain loss on each individual trip. While the expected value of any single insured voyage is negative, he ensures his enterprise doesn't go to zero, thereby guaranteeing a higher compounding growth over time.
A Critique of Modern Finance's "Static" View
Armed with this perspective, the book dismantles modern financial practices. It argues that most of finance is guilty of Narrow Framing: looking at individual parts and short-term variables while missing the long-term result of the whole system, which is what we truly care about. As Nassim Taleb also argues, investors look at returns in a "static" way, like snapshots in time, when the reality is that everything is connected and continuous. This is why metrics like the Sharpe Ratio are so misleading.
The author posits that this flawed thinking is a form of "Physics Envy," where finance experts apply elegant but inappropriate formulas to a messy, non-ergodic world. The goal of risk mitigation shouldn't be to simply dampen volatility, but to ALWAYS raise the geometric returns, the median value, or the worst possible path for our portfolios.
Testing the Thesis in the "Gladiator Arena"
The book doesn't just philosophize; it puts its ideas to the test. In what the author calls a "CAGR coliseum," various common investment strategies are pitted against each other to see how they perform over time.
Conventional "Safe" Assets: Strategies like allocating to T-Bills either produced negative returns or were statistically no better than the S&P 500. Gold performed well during high inflation but was otherwise flat. These are shown to be statistical gains, not the mechanical "free gains" a true safe haven should provide.
Alpha Strategies: Momentum-following strategies, often used by hedge funds for "risk mitigation," performed very poorly.
The Insurance Portfolio: The book then tests its core thesis: a Tail Risk Strategy where 2% of the portfolio is put into assets that are designed to lose a little money consistently but explode in value during a market crash. When tested against historical S&P returns, this was the only portfolio that actually outperformed the market, delivering a 0.5% higher return over the long run. Even in simulations where the market never crashed, the small 2% allocation was not a significant drag on performance.
Conclusion: The First Principle is to Avoid Ruin
Ultimately, the book is a powerful argument for a very old idea, famously stated by Warren Buffet: "The number one principle is to avoid losing". In the spirit of Karl Popper's principle of Falsifiability, the author doesn't claim to have proven the one perfect theory. Instead, the book makes a "bold conjecture" and proceeds to rigorously test and falsify the conventional wisdom that passes for risk management.
It proves that true safe havens can exist and can increase a portfolio's compounding power, but they are not found where most people are looking. The book provides a powerful new way to think about risk, forcing you to invert the problem and, above all, focus on surviving your one, precious path through the markets.
Why Not 5 Stars?
I wish there was more practical advice specially on the latter chapters. I felt the book ended abruptly.
Here are the pivotal ideas and concepts I gathered from this exceptional book:
The Philosopher's Wager: One Life or a Multiverse of Trials?
The book's entire thesis rests on a fascinating philosophical conflict. On one side, we have Friedrich Nietzsche's idea of the eternal return. He argued we have only one life, a single path that we will repeat for eternity. In his view, our sample space is N=1. This forces us to ask of any decision: would I do this if it were the only path I'll ever have, repeated forever?
On the other side is the quantum idea, which the book associates with Schopenhauer and Schrodinger, of infinite multiverses where all possible paths unfold simultaneously. This is the world of frequentist statistics, where we have infinite trials to base our calculations on.
This brings us to the core problem in finance: Ergodicity. A system is ergodic when the average result of the group is the same as the long-term result for the individual. The book’s central claim is that financial markets are fundamentally non-ergodic. You don't get the average outcome of all possible paths; you only get your specific path.
To illustrate this, the book introduces a bet with the devil: out of six outcomes, four result in a 5% gain, while two result in a 50% loss. In the multiverse view, the arithmetic average is a positive 3.33%. But in the real world of Nietzsche's devil, where you only live your one path, most outcomes lead to you losing most of your wealth. You will, most of the time, go bust.
The Right Tools: Logarithms and Geometric Averages
The book argues that since the 18th century, we've had the tools to solve this. Daniel Bernoulli, faced with a similar paradox of a coin flip with an infinite expected value, realized that the arithmetic average doesn't apply to these kinds of power-law distributions. His solution was Expected Utility Theory, which intuits that the value of money is relative to the wealth one already possesses.
The continuous version of this function is the Logarithm. This mathematical tool has two properties vital for investing:
Any zero will lead to zero overall. As a logarithm approaches zero, its value goes to minus infinity, representing total ruin from which there is no recovery.
As you have more wealth, higher gains have lower utility. The joy of earning a million dollars is much greater when you have nothing than when you're already a billionaire.
This thinking leads us to the Geometric Average, which uses multiplication instead of addition. According to the author, this should be the primary tool for market bets for several reasons:
Wealth compounds, so losses are worse than they appear because you also lose future compounding growth. A 20% loss is mathematically more than twice as bad as a 10% loss over time.
If your wealth goes to zero, the expected value is always zero.
Returns should be dependent on your starting wealth, as marginal utility decreases.
The "Merchant Problem" perfectly captures this. A merchant who insures his ships is accepting a small, certain loss on each individual trip. While the expected value of any single insured voyage is negative, he ensures his enterprise doesn't go to zero, thereby guaranteeing a higher compounding growth over time.
A Critique of Modern Finance's "Static" View
Armed with this perspective, the book dismantles modern financial practices. It argues that most of finance is guilty of Narrow Framing: looking at individual parts and short-term variables while missing the long-term result of the whole system, which is what we truly care about. As Nassim Taleb also argues, investors look at returns in a "static" way, like snapshots in time, when the reality is that everything is connected and continuous. This is why metrics like the Sharpe Ratio are so misleading.
The author posits that this flawed thinking is a form of "Physics Envy," where finance experts apply elegant but inappropriate formulas to a messy, non-ergodic world. The goal of risk mitigation shouldn't be to simply dampen volatility, but to ALWAYS raise the geometric returns, the median value, or the worst possible path for our portfolios.
Testing the Thesis in the "Gladiator Arena"
The book doesn't just philosophize; it puts its ideas to the test. In what the author calls a "CAGR coliseum," various common investment strategies are pitted against each other to see how they perform over time.
Conventional "Safe" Assets: Strategies like allocating to T-Bills either produced negative returns or were statistically no better than the S&P 500. Gold performed well during high inflation but was otherwise flat. These are shown to be statistical gains, not the mechanical "free gains" a true safe haven should provide.
Alpha Strategies: Momentum-following strategies, often used by hedge funds for "risk mitigation," performed very poorly.
The Insurance Portfolio: The book then tests its core thesis: a Tail Risk Strategy where 2% of the portfolio is put into assets that are designed to lose a little money consistently but explode in value during a market crash. When tested against historical S&P returns, this was the only portfolio that actually outperformed the market, delivering a 0.5% higher return over the long run. Even in simulations where the market never crashed, the small 2% allocation was not a significant drag on performance.
Conclusion: The First Principle is to Avoid Ruin
Ultimately, the book is a powerful argument for a very old idea, famously stated by Warren Buffet: "The number one principle is to avoid losing". In the spirit of Karl Popper's principle of Falsifiability, the author doesn't claim to have proven the one perfect theory. Instead, the book makes a "bold conjecture" and proceeds to rigorously test and falsify the conventional wisdom that passes for risk management.
It proves that true safe havens can exist and can increase a portfolio's compounding power, but they are not found where most people are looking. The book provides a powerful new way to think about risk, forcing you to invert the problem and, above all, focus on surviving your one, precious path through the markets.
Why Not 5 Stars?
I wish there was more practical advice specially on the latter chapters. I felt the book ended abruptly.
December 29, 2022
Great value, but not a leisure read
I first came across the book when I was looking for the recent update of Mark’s friend: Nassim Nicolas Taleb; a famous and outspoken inventor and author. If Nassim’s writings are more from the philosophical aspect on how to survive (and hopeful thrive) in an environment disproportionately impacted by rare events, this book provides the first step to connect the philosophy to real world implementation. While it illustrates under the context of investing, the underlying message can be applied to almost all aspects of life.
The book has changed my thinking process, and I can strongly recommend. However, I do want to point out that it felt a little dry at my first read. One of the reasons is that I was treating it purely as a leisure read and didn’t concentrate much. However, the insights started shocking me when I later re-read it seriously. It’s not a technical book, but is a little more technical than Nassim’s books. Prepare yourself and enjoy the feast.
I first came across the book when I was looking for the recent update of Mark’s friend: Nassim Nicolas Taleb; a famous and outspoken inventor and author. If Nassim’s writings are more from the philosophical aspect on how to survive (and hopeful thrive) in an environment disproportionately impacted by rare events, this book provides the first step to connect the philosophy to real world implementation. While it illustrates under the context of investing, the underlying message can be applied to almost all aspects of life.
The book has changed my thinking process, and I can strongly recommend. However, I do want to point out that it felt a little dry at my first read. One of the reasons is that I was treating it purely as a leisure read and didn’t concentrate much. However, the insights started shocking me when I later re-read it seriously. It’s not a technical book, but is a little more technical than Nassim’s books. Prepare yourself and enjoy the feast.
November 27, 2021
Life being non-ergodic is a key insight. Geometric mean (Bernoulli Expeced Value) needs to be maximized instead of arithmetic mean (regular expected value). Nietzsche's demon's thought experiment is energizing:
'This life as you now live it and have lived it, you will have to live once more and innumerable times more; and there will be nothing new in it, but every pain and every joy and every thought and sigh and everything unutterably small or great in your life will have to return to you, all in the same succession and sequence—even this spider and this moonlight between the trees, and even this moment and I myself. The eternal hourglass of existence is turned upside down again and again, and you with it, speck of dust!'
'This life as you now live it and have lived it, you will have to live once more and innumerable times more; and there will be nothing new in it, but every pain and every joy and every thought and sigh and everything unutterably small or great in your life will have to return to you, all in the same succession and sequence—even this spider and this moonlight between the trees, and even this moment and I myself. The eternal hourglass of existence is turned upside down again and again, and you with it, speck of dust!'
April 4, 2024
I have the highest regards for Mark as a trader for he is a genius beyond doubt. This book, however, is too complex and esoteric for even someone like me who’s into serious investing and must have read over 100 investing related book. This simply is a collection of mathematical concepts beyond comprehension for even an engineer turned investor.
The problem with people rating it 4-5 stars is that they are too timid to call this out. They’re scared that maybe people will judge them to be less intelligent or that they didn’t get the book.
I am not stupid, I didn’t get the book- the book is too complex, period!
The problem with people rating it 4-5 stars is that they are too timid to call this out. They’re scared that maybe people will judge them to be less intelligent or that they didn’t get the book.
I am not stupid, I didn’t get the book- the book is too complex, period!
September 25, 2022
Mark is definitely not a good writer as he needs to understand the difference between writing a book and putting down all the thoughts going through one’s mind.
On the other hand, the books contains high quality material and mark shares his perspective about math science and investing in the modern era. I particularly liked the part he focused on why things work and how things work instead of just what works, in his words telling part pseudoscience from the real science. It is particularly valuable given the recent popularity of the so-called AI or machine learning schemes
On the other hand, the books contains high quality material and mark shares his perspective about math science and investing in the modern era. I particularly liked the part he focused on why things work and how things work instead of just what works, in his words telling part pseudoscience from the real science. It is particularly valuable given the recent popularity of the so-called AI or machine learning schemes
May 25, 2023
Sometimes you start reading a new book, and it takes one chapter to roll in the content. But after this you get excited and can’t stop reading.
Before the end of chapter one i’ve already got a gut feeling… what am i reading? What does this book want to tell me?
Couldn’t continue… it’s a vicious circle of: we have to beware and take care of risk mitigation, but i won’t tell i do it. But we have to mitigate risk….
Before the end of chapter one i’ve already got a gut feeling… what am i reading? What does this book want to tell me?
Couldn’t continue… it’s a vicious circle of: we have to beware and take care of risk mitigation, but i won’t tell i do it. But we have to mitigate risk….
December 4, 2021
Read a blog post on Kelly criterion and arithmetic vs geometric compounding and you’ll have most of the book
February 23, 2022
This book can be characterised by the following phrases, which I found myself uttering mostly internally (but also, at times, audibly, externally, giving the impression that I am one of those cunts who belongs to the group of people who have precisely 0 self-awareness and exactly 0 concern for other members of the public that are sharing the same space as them. Those bellends that play music without headphones on buses, talk loudly on the blower in the quiet section on trains, and deliver constructive criticism of the book they are currently reading, out-loud, whilst they are reading it.):
"Meh" "Ah" "Ok" "That's true" "Ok, so what?" "You've said that before" "Yeah, I knew that" "Well, that wasn't really necessary, was it?"
I opened this book with fairly high expectations; I thoroughly enjoyed Spitznagel's first book and I'll gobble up books on this subject matter all day long.
Alas, I didn't really learn anything from Safe Haven Investing. Admittedly, this is partly my fault. Having consumed a substantial % of the content in this area, authors are bound to explain shit that I already know. However, this is a consequence of Mark "Spitz" Spitznagel not really saying much. It reads like he banged out the bulk of the text in a week of focused work, or maybe a few months writing in the moments between a busy family and social life and, say, running a hedge fund or something.
There just wasn't enough meat here to get one's teeth stuck into. This is why Spitzy is forced to repeat himself too many times and to chuck in unneeded, pretentious paragraphs that have approximately little to do with the main point he is driving at. His central thesis seems to be correct and is well-supported by an array of statistics, simulations, and logic, but this doesn't require a book to lay out. A long blog post would have been much better.
"Meh" "Ah" "Ok" "That's true" "Ok, so what?" "You've said that before" "Yeah, I knew that" "Well, that wasn't really necessary, was it?"
I opened this book with fairly high expectations; I thoroughly enjoyed Spitznagel's first book and I'll gobble up books on this subject matter all day long.
Alas, I didn't really learn anything from Safe Haven Investing. Admittedly, this is partly my fault. Having consumed a substantial % of the content in this area, authors are bound to explain shit that I already know. However, this is a consequence of Mark "Spitz" Spitznagel not really saying much. It reads like he banged out the bulk of the text in a week of focused work, or maybe a few months writing in the moments between a busy family and social life and, say, running a hedge fund or something.
There just wasn't enough meat here to get one's teeth stuck into. This is why Spitzy is forced to repeat himself too many times and to chuck in unneeded, pretentious paragraphs that have approximately little to do with the main point he is driving at. His central thesis seems to be correct and is well-supported by an array of statistics, simulations, and logic, but this doesn't require a book to lay out. A long blog post would have been much better.
April 4, 2024
This book is about how to protect investments from large losses. The author makes sure we understand the basics of risk calculation and the disproportionate role of a few large losses in a portfolio. There is some math to explain the concepts and introduce the idea, but it is simple, and also optional.
There is an introduction to the important, but not much talked about "non-ergodic" nature of risky investments (for example stock markets).
The later parts of the book shows simple examples of games of risk and strategies to reduce risk in those games. These example sare simple, but highly effective and easy to understand the concept.
The book explores common risk management techniques on these examples - high allocation to cash (no risk), allocating no more than 40% of the portfolio (Kelly criterion) etc - and their relative risk hedging effectiveness.
The conclusion is that a strategy of buying a small insurance like investment (that is lost when there is no risk, and multi-fold returns when a total loss happens) will enhance overall portfolio returns.
This concept is not really esoteric - we already buy insurance for our cars life, health and home, where the premium is an expense that returns -100%, i.e., it is not given back, but there is a large payout when bad things happen). It was just not more talked about in investing.
I highly recommend it.
There is an introduction to the important, but not much talked about "non-ergodic" nature of risky investments (for example stock markets).
The later parts of the book shows simple examples of games of risk and strategies to reduce risk in those games. These example sare simple, but highly effective and easy to understand the concept.
The book explores common risk management techniques on these examples - high allocation to cash (no risk), allocating no more than 40% of the portfolio (Kelly criterion) etc - and their relative risk hedging effectiveness.
The conclusion is that a strategy of buying a small insurance like investment (that is lost when there is no risk, and multi-fold returns when a total loss happens) will enhance overall portfolio returns.
This concept is not really esoteric - we already buy insurance for our cars life, health and home, where the premium is an expense that returns -100%, i.e., it is not given back, but there is a large payout when bad things happen). It was just not more talked about in investing.
I highly recommend it.
May 7, 2025
This book massively over-complicatedly explains ideas that don't really have to be explained in such complex/confusing ways, nor need to take nearly so long to explain.
From I've been able to derive from reading it so far, the main point (which the book massively muddies) seems to be that if you're looking at your expected compounded returns over time, taking a normal 'arithmetic' average of expected returns is not the best approach, as bets that take too large a risk with too much of your capital might be positive for your average expected returns, but completely destroy your _median_ expected returns.
To use a simple example from Taleb (which Taleb uses to make a slightly different point), albeit not an example this book uses because it would be too helpful in clarifying the point, if you repeatedly make a bet 200 times with your entire wealth which has 90% odds of 10% return and 10% odds of 90% loss each time, on average your wealth at the end will be the same as to begin with, but over 99% of the time you'll end up with virtually nothing (while very very rarely you'll be massively up). And such a bet is thus probably not advisable for an individual to take (unless you really want to buy a lottery ticket with all your money). Whereas e.g. if you took the same bet many times, but only using 10% of your entire wealth each time, then your median return is much closer to the average (neutral) return.
The book is suggesting rather than looking at the expected 'arithmetic' average of your returns on a given bet, you rather should look at the 'geometric' average. But why exactly this is the best way out of all possible ways to look at things is really not explained well, making it seem extremely arbitrary. It seems to me there's probably no 'perfect' universal way to balance between looking at the median vs the arithmetic average for an individual investor's expected returns over time, and using the geometric average may well be a good way to do it, but the book really does a poor job at explaining why due to how badly and over-complexly it explains things.
[Update - reading further into the book, 34% of the way into the book it finally explains the concept basically the way I did here, for the very first time using the word 'median' and confirming my understanding was correct.... however, it could saved 90% of the first third of the book by just giving this simple explanation from the beginning]
From I've been able to derive from reading it so far, the main point (which the book massively muddies) seems to be that if you're looking at your expected compounded returns over time, taking a normal 'arithmetic' average of expected returns is not the best approach, as bets that take too large a risk with too much of your capital might be positive for your average expected returns, but completely destroy your _median_ expected returns.
To use a simple example from Taleb (which Taleb uses to make a slightly different point), albeit not an example this book uses because it would be too helpful in clarifying the point, if you repeatedly make a bet 200 times with your entire wealth which has 90% odds of 10% return and 10% odds of 90% loss each time, on average your wealth at the end will be the same as to begin with, but over 99% of the time you'll end up with virtually nothing (while very very rarely you'll be massively up). And such a bet is thus probably not advisable for an individual to take (unless you really want to buy a lottery ticket with all your money). Whereas e.g. if you took the same bet many times, but only using 10% of your entire wealth each time, then your median return is much closer to the average (neutral) return.
The book is suggesting rather than looking at the expected 'arithmetic' average of your returns on a given bet, you rather should look at the 'geometric' average. But why exactly this is the best way out of all possible ways to look at things is really not explained well, making it seem extremely arbitrary. It seems to me there's probably no 'perfect' universal way to balance between looking at the median vs the arithmetic average for an individual investor's expected returns over time, and using the geometric average may well be a good way to do it, but the book really does a poor job at explaining why due to how badly and over-complexly it explains things.
[Update - reading further into the book, 34% of the way into the book it finally explains the concept basically the way I did here, for the very first time using the word 'median' and confirming my understanding was correct.... however, it could saved 90% of the first third of the book by just giving this simple explanation from the beginning]
December 16, 2021
Mark Spitznagel is founder and CEO of Universa Investments L.P., a hedge-fund that provides tail-hedging (risk mitigation) strategies for portfolios. If you're looking for a book that provides clear answers of where to invest your money during a financial storm, then this book is not for you. After providing historical context around risk mitigation, Spitznagel moves onto a thorough di-section of what elements effectively create a cost-effective risk mitigation strategy for a portfolio in the event of a market crash.
In the end, the conclusion is a bit depressing, however, I found the perspective to be beneficial in that it provided me the foundation to be critical of my own assumptions around passive-investing and where I might find some safe investment opportunities. The math presented is a bit dense, and I fluctuated between rapt absorption and my eyes being glazed over. That being said, if you have ever enjoyed reading the likes of Nicolas Taleb (whom he has worked with on occasion in the past), then you'll most likely enjoy this book as well.
In the end, the conclusion is a bit depressing, however, I found the perspective to be beneficial in that it provided me the foundation to be critical of my own assumptions around passive-investing and where I might find some safe investment opportunities. The math presented is a bit dense, and I fluctuated between rapt absorption and my eyes being glazed over. That being said, if you have ever enjoyed reading the likes of Nicolas Taleb (whom he has worked with on occasion in the past), then you'll most likely enjoy this book as well.
February 10, 2022
This book was both challenging and interesting. It is very Math-centric but I like how the author lets the reader know that understanding the math isn't crucial. He wants you to walk away with the concepts and ideas that he is trying to hammer home. He certainly does barrage you with the same concepts and ideas but I believe that is a good thing because although there are many details I won't remember in a month from now — I will always remember the key concepts. I like reading about contrarians and people that have ideas that go against the grain. And the author really won me over with not only his writing but also his critique of modern investing and the 'professionals' practicing what he calls pseudoscience when it comes to portfolio returns. Additionally, I liked his examples in order to explain his concepts and although I sometimes had to read them out loud in order to understand them, I never became overwhelmed by them. I think if one is willing to come in with a learning intention then you will enjoy and benefit from this book.
March 30, 2025
The writing style is quite poor and could definitely be improved. That said, I did appreciate the message the author was trying to convey.
Safe Haven offers a different perspective on risk management. Traditionally, investors reduce risk by allocating assets into less correlated investments like bonds, gold, or REITs, which often leads to lower returns.
The author argues that risk management should be cost-effective, noting that “the cure should not be worse than the disease.” In other words, risk mitigation should ideally help grow our wealth—not reduce it.
The specifics of the risk mitigation strategies (referred to as insurance) were not clearly explained. Readers are expected to have some basic knowledge of options to fully understand the author’s points—ironically, those who do might not need this book in the first place.
However, the book provided useful simulations and backtesting ideas for my own research and investing.
Safe Haven offers a different perspective on risk management. Traditionally, investors reduce risk by allocating assets into less correlated investments like bonds, gold, or REITs, which often leads to lower returns.
The author argues that risk management should be cost-effective, noting that “the cure should not be worse than the disease.” In other words, risk mitigation should ideally help grow our wealth—not reduce it.
The specifics of the risk mitigation strategies (referred to as insurance) were not clearly explained. Readers are expected to have some basic knowledge of options to fully understand the author’s points—ironically, those who do might not need this book in the first place.
However, the book provided useful simulations and backtesting ideas for my own research and investing.
November 14, 2021
Not terrible, but I frankly expected more. It read a lot like a Taleb-esque rant (mind you I say this as someone who actually likes Taleb). It just didn't go deep enough into the substance for me, and further it had a LOT of random diversions and repetitions. This would have been a lot better with a good editor. Fortunately it was a fairly short book.
Negatives aside (also the narrator of the audible version was pretty terrible), the way he explains various parts of the payoff theory, geometric vs arithmetic effects, and even the presentation of analysis about various "safe havens" was actually super good. It just felt more like an advert for his hedge fund, which isn't really necessary. Anyone who follows the smart guys on volatility twitter probably has at least some idea how they do what they're doing so no need to be all hush hush and aloof.
Negatives aside (also the narrator of the audible version was pretty terrible), the way he explains various parts of the payoff theory, geometric vs arithmetic effects, and even the presentation of analysis about various "safe havens" was actually super good. It just felt more like an advert for his hedge fund, which isn't really necessary. Anyone who follows the smart guys on volatility twitter probably has at least some idea how they do what they're doing so no need to be all hush hush and aloof.
October 6, 2022
This books gives you an introduction to ergodicity. and why using averages (that assumes you have the luxury to live 100s of lives to gain the benefits of averaging) is the wrong way to go with investing. The better way is to use Median average to reflect the fact that we only have one life to live and maximize.
This is paired with the authors maxim that safe haven should not only help you during hard times, it should increase the - now median - earnings of your portfolio.
Then we are presented with a framework to evaluate some known choices that might be considered safe havens. But we are, of course, not left with a clear winner. After all, Mark makes a living out of this and this might borderline trade secrets for Universa.
Interesting read that gives you exposure to this line of thought in the word of investing.
This is paired with the authors maxim that safe haven should not only help you during hard times, it should increase the - now median - earnings of your portfolio.
Then we are presented with a framework to evaluate some known choices that might be considered safe havens. But we are, of course, not left with a clear winner. After all, Mark makes a living out of this and this might borderline trade secrets for Universa.
Interesting read that gives you exposure to this line of thought in the word of investing.
November 8, 2025
In this first few pages Mark says he’s not gonna reveal what his 100% CAGR portfolio looks like and he sure doesn’t. Instead he tells you what not to do, which is VALUABLE.
Risk is generally misunderstood and Mark defines it beautifully. Thinking logarithmically is overlooked and under utilized and Mark gives you a look at how to utilize it to understand whether a portfolio is good or bad in the long run (cost effective or just costly). That measuring stick is the golden goose of this book. This is a strategic lesson, not a tactical one. After reading, you’ll know the best position for your portfolio to be in, but not how to be in it. He leaves the experimenting, sweating, obsessing, and bird watching to you.
4 stars because it’s missing real world examples for the winning risk mitigation strategy.
Risk is generally misunderstood and Mark defines it beautifully. Thinking logarithmically is overlooked and under utilized and Mark gives you a look at how to utilize it to understand whether a portfolio is good or bad in the long run (cost effective or just costly). That measuring stick is the golden goose of this book. This is a strategic lesson, not a tactical one. After reading, you’ll know the best position for your portfolio to be in, but not how to be in it. He leaves the experimenting, sweating, obsessing, and bird watching to you.
4 stars because it’s missing real world examples for the winning risk mitigation strategy.
November 29, 2021
Interesting and well-presented story about "safe haven investing"
I enjoyed the historical anecdotes and the (high school level) math behind the fundamentals of the argument. Math equations were a bit hard to absorb fully in audio form, but key impact points were clear.
My only squabble was the focus on 'insurance-based strategies' as key safe haven needed a bit more quantifying on the cost of insurance. I think the goal of general theory understanding (not cookbook investment advice) was why author did not elaborate, but this was the one point where generality left me with a tiny bit of vagueness.
But, overall a powerful thesis and really quite well-executed in the clarity of the imagery and language to keep it clear for the reader.
I enjoyed the historical anecdotes and the (high school level) math behind the fundamentals of the argument. Math equations were a bit hard to absorb fully in audio form, but key impact points were clear.
My only squabble was the focus on 'insurance-based strategies' as key safe haven needed a bit more quantifying on the cost of insurance. I think the goal of general theory understanding (not cookbook investment advice) was why author did not elaborate, but this was the one point where generality left me with a tiny bit of vagueness.
But, overall a powerful thesis and really quite well-executed in the clarity of the imagery and language to keep it clear for the reader.
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