Review | Safe Haven: Investing for Financial Storms by Mark Spitznagel

Seldom does a book actively change the way I think, but this book by Mark Spitznagel – founder and CIO of Universa Investments – did just that. Safe Haven is dedicated to the exploration of risk mitigation, with Spitznagel dimystifying the widely taught Modern Portfolio Theory (MPT) ingrained in every finance graduate's education. Through numerous case studies, examples, and a high-level explanation of the math involved, Spitznagel guides the reader through a critical reevaluation of conventional financial wisdom.

Right off the hop, Spitznagel introduces the reader to the Saint Petersburg Paradox, originally introduced by Swiss mathematician Daniel Bernoulli in the 1700's. This paradox challenges the classical perspective that individuals should make decisions solely based on maximizing their expected value (expected arithmetic return). Instead, Spitznagel underscores the importance of maximizing the expected compound return (geometric average return). This initial example establishes the foundation for the remainder of the book, emphasizing the possibility of investing in a strategy that, on its own, might yield an expected loss. However, by strategically lowering the right risk within a portfolio, one can actually increase the rate of expected compounding – which, as Spitznagel argues, is the true focal point.

This book warrants multiple readings. I found it exceptionally interesting and captivating, and I intend to revisit it until I can fully grasp all the concepts involved. Safe Haven has unequivocally altered my perspective on risk mitigation.

RATING: 9.4 / 10

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A lovely night of light snowfall during my walk home from the bus stop after work.