The Fat Tail: The Power of Political Knowledge for Strategic Investing

by Ian Bremmer, Preston Keat

In recent years, investors have learned the hard truth that in the international economy, politics often matters at least as much as economic fundamentals for the performance of global markets. Too many companies and investors haven't yet learned to read the warning their expertise lies much more in economics than politics, and the temptation is to hope that highly volatile situations such as the 2008 Georgia-Russia confrontation will be few and far between. But as Ian Bremmer and Preston Keat demonstrate, these scenarios--and their catastrophic effects on business--happen much more frequently than we imagine. On the curve that charts both the frequency of these events and the power of their impact, the 'tail' of extreme political instability is not reassuringly thin but dangerously fat. This groundbreaking book is the first to both identify the wide range of political risks that global firms face and show investors how to effectively manage them. Written by two of the world's leading figures in political risk management, it reveals that while the world remains exceedingly risky for businesses, it is by no means incomprehensible. Political risk is unpredictable, but it is easier to analyze and manage than most people think. Applying the lessons of world history, Bremmer and Keat survey a vast range of contemporary risky situations, from stable markets like the United States or Japan, where politically driven regulation can still dramatically effect business, to more precarious places like Iran, China, Russia, Turkey, Mexico, and Nigeria, where private property is less secure and energy politics sparks constant volatility. The book sheds light on a wide array of political risks--risks that stem from great power rivalries, terrorist groups, government takeover of private property, weak leaders and internal strife, and even the "black swans" that defy prediction. But more importantly, the authors provide a wealth of unique methods, tools, and concepts to help corporations, money managers, and policy makers understand political risk, showing when and how political risk analysis works--and when it does not. Authored by Ian Bremmer (author of the bestselling The J-Curve ) and Preston Keat, the president and research director (respectively) of Eurasia Group, the world's leading political risk consultancy firm, The Fat Tail is an indispensable guide for anyone involved in the international economy.

Genres: Politics, Nonfiction, Economics, Finance, Audiobook, International Relations, Business

272 pages, Hardcover

First published January 29, 2009

About the author

Ian Bremmer (born November 12, 1969) is an American political scientist specializing in US foreign policy, states in transition, and global political risk. He is the president and founder of Eurasia Group, a leading global political risk research and consulting firm, and a professor at Columbia University. Eurasia Group provides financial, corporate, and government clients with information and insight on how political developments move markets. Bremmer is of Armenian and German descent.

Reviews

[Mitch · Rating 4 out of 5]

Read this book for my Political Risk Management class. If you want to know more about political risks and how they affect investors, this book is a must-read!

[أحمد · Rating 4 out of 5]

كتاب سلس رغم صعوبة موضوعه، اللي هو الـgeopolitics أو علم السياسة الجغرافية أو الطبيعية، والمصنفات فيه بالعربي شحيحة أو أنا مقابلتش منها كتير.
الكتاب بيتكلم بشكل أساسي عن المخاطر السياسية اللي ممكن تقابل الشركات والمنظمات زي الثورات والارهاب والتأميم والحروب الأهلية وازاي الشركات بتتأثر بده مع ذكر تجارب لشركات كبيرة قابلت المخاطر دي وفيه منها اللي فشل في مواجهتها وفيه اللي نجح، وازاي ممكن تقليل المخاطر دي.

ميزة لطيفة في المترجم انه ذكر المصطلحات الإنجليزية المهمة في سياقها في الكتاب بشكل يحقق اثراء لغوي للقارئ غير المتخصص.

[Nilesh Jasani · Rating 3 out of 5]

The author makes highly relevant points. Political risk is extremely important and everyone in business could benefit by doing the right political risk assessment. There are great examples/anecdotes of different types of risks. All that said, and even if discounting political risks not at all discussed because of the American/Western point of view of the book, the book is extremely repetitive. In trying to define terms like terrorism vs civil war vs coup vs ..., it becomes too pedantic. And if it were just theoretical, it would have been good too but none of the suggestions are objective, implementable steps. One gets a feeling that whether you assessed political risk rightly or not eventually depends on the conclusion because anything can be right or wrong.

[Steven Peterson · Rating 4 out of 5]

As a political scientist, I love the premise of this book. Businesses and organizations ought to hire political scientists to assist with political risk management.

It is also a direct challenge to thinkers like Taleb, whose book "The Black Swan" argued that unlikely events can't be predicted and that much of what happens is beyond control. This book disagrees, arguing that sensible risk management can deal with/mitigate the effects of unlikely events.

This is a well written and interesting little volume. Worth a look!

[Russ · Rating 3 out of 5]

This is a long form sales letter for political consultants but the anecdotes were interesting. The authors list and explain several risks that multinational companies may face. There are suggestions to mitigate each risk. Most of the ideas are common sense. The most useful analysis of the book is the basic risk management analysis.

This is an easy read for multinational managers and investors.

[bookreader]

Political risks don't neatly fit normal (Gaussian) distributions, which is why they're so dangerous to portfolio investors. Following in Taleb's footsteps, this useful, fluent primer helps overseas investors identify, manage, and mitigate these "fat-tail" risks, not only in the obvious places (emerging markets), but also where they're often overlooked (developed markets).

[Liquidlasagna · Rating 1 out of 5]

The Fat Tail delivers practical wisdom on the impact of political risk on firms of every description and valuable advice on how to use it. Ian Bremmer and Preston Keat offer innovative thinking and useful insight that will help business decision-makers find fresh answers to questions they may not yet know they have.
Fareed Zakaria

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Amazon review

Be wary of anyone who calims the ability to map things like political risk or incentives

I bought this book because Fareed Zakaria recommended it at the end of one of his Global Public Square (GPS) broadcasts.

The authors describe a Fat Tail as being the same as what Nassim Nicholas Taleb described as a Black Swan in his book of the same name. One which, by the way, I bought for the same reason I bought the Fat Tail.

Early in the book, the authors, after showing what a fat tail looks like on a graph compared to a normal Gaussian distribution or bell shaped curve made a statement which caught my attention and made reference to Taleb's excellent work.

"Those who would apply Taleb's theory to political risk face another important problem. Unlike financial, economic, or environmental risks, political risks are usually generated by individuals, people with particular and identifiable sets of motivations and limitations. This makes them predictable, and not black swans. If we can map these incentives and constraints, it is considerably easier to forecast downside risks (and the limitations on upside outcomes.)"

I grabbed my pen and wrote in the margin BIG IF!

It's hard to argue against the conclusion that political risks are usually generated by individuals. I'm not as sanguine, however, regarding how readily identifiable sets of motivations are in any individual at any given time. And, the moment I hear anyone begin talking about mapping incentives and constraints, alarm bells start going off and red lights start blinking on my danger grid. Human nature, motivations, political advantage and hidden agendas are, under ideal circumstances, at best squishy.

When I think of mapping something...anything, I see mental images of scientists, mathematicians or technologists working with sets of data represented by numbers. I see graphs, computers and mathematical models. In this book, I saw none of that.

Instead, I saw a series of discussions about events like geopolitics, political risk and capital markets, domestic instability, civil war, state failure and terrorism discussed with anecdotal references to how such events impacted the business of companies and corporations and how they were able to deal with those situations.

And, while these discussions were interesting and instructive, in my opinion, they hardly represented even any semblance of the word mapping, as I believe most people understand the term.

I found the book disappointing because, as I read it, I couldn't help thinking that what Bremmer and Kent were saying, in addition to their exposition was, "we're the ones who know this stuff and, if you are interested in or worried about any of what we've said, maybe you should get in contact with us."

Now, maybe that's just me but after making a concerted effort to read the book objectively I can't, in good conscience, recommend it.

My strong recommendation for and support of Taleb's Black Swan, however, remains unchanged.

Rating 4/10

Stephen Hage

[Eddie Choo · Rating 3 out of 5]

A decent introduction to political risk

This book is better read as an introduction for how to think about political risks. Although there are anecdotes about how companies manage risk, the intellectual framework for risk is not well developed.

[Mohsen Gabr · Rating 3 out of 5]

حلو بس غير مرتب

[عمار · Rating 3 out of 5]

يوجد فيه عصارة خبرة الكاتب
تنظيم المعلومات غير جيد
الترجمة العربية غير جيدة احيانا

[Hosni Elsayed]

كتاب رائع
يحتوي مجموعه قيمه من المعلومات السياسيه

[Tatiana · Rating 3 out of 5]

3,5/5
Kind of repetitive

[E · Rating 5 out of 5]

Groundbreaking exploration of political risk

This timely, concise book provides an introduction to managing and assessing international political risk. Ian Bremmer and Preston Keat downplay the jargon and specialists’ terminology, so their book is easily accessible. However, the authors do presume that readers have at least a nodding acquaintance with the facts of international business life. Many recent risk management books focus more on managing market risks. Political risk, while less quantifiable, still presents a challenge and demands effective administrative attention. This book is a valuable addition to the literature on risk management. Its great merit, getAbstract reports, is that it provides a framework for understanding the nature of political risk and a variety of approaches to managing it.

[Mark McGuire · Rating 5 out of 5]

Great start for understanding the importance of political risk. Bremmer lays out a framework for people with a rudimentary understanding of global affairs/international relations can understand how economics and business are affected by political choices.

[Drury · Rating 3 out of 5]

This book was my first experience in political risk analysis. I find it to be a fascinating field, and think that Bremmer did an excellent and compelling job of highlighting its importance.

[Theodore Kinni · Rating 3 out of 5]

Very interesting primer on why and how companies should identify and evaluate political risk.

[Daniel Stair · Rating 4 out of 5]

Not bad (though I thought Ian Bremmer's more recent book, "Superpower", was quite a bit better). Lots of interesting stories mixed in with some academic theory. I thought the book clearly came across as a pitch for the author's consulting firm, a firm which specializes in assessing and mitigating political risk, and a firm which depends heavily on clients in the finance industry. Nonetheless, a decent read.

[Njabulo · Rating 3 out of 5]

Enlightening read and a lot of the topics can be related to the current climate