The Dao of Capital

Spitznagel argues for an investment approach he derives from Austrian economics, particularly from Bohm-Bawerk's theory of capital and from Mises.

The organising concept is roundaboutness, which Spitznagel takes from Bohm-Bawerk: production becomes more effective when it takes an indirect route, investing first in the means of production and accepting a delay before output. He extends this into an investment principle, arguing that an investor should accept losses in the near term to achieve a stronger position later, rather than pursuing immediate returns. His illustrations include the strategic patience of Chinese classical thought, the Austrian pine forest management practice of allowing slow growth, and Klipp's rule from his own trading apprenticeship, which required taking small losses immediately rather than defending positions.

The macroeconomic argument is Austrian business cycle theory. Central banks suppressing interest rates below the natural rate distort the structure of production, drawing capital into investments that are only viable at the artificial rate, and the resulting misallocation must eventually be corrected. Spitznagel argues that intervention prevents the correction and therefore accumulates the distortion.

His practical measure is what he calls the Misesian stationarity index, a ratio of equity market capitalisation to corporate net worth, which he treats as an indicator of the distortion's extent and therefore of expected returns. He argues for holding capital in reserve when the index is high and deploying aggressively after the correction.

The Austrian framework is not accepted by most economists, and its central empirical prediction, that suppressed rates must produce a correction, has been difficult to test because the timing is unspecified. Spitznagel's index resembles Tobin's q, which has some predictive power for long-horizon returns but has signalled overvaluation for extended periods. The book is discursive and the connection between the philosophical material and the investment advice is loose. He sells the strategy he recommends.