Book: 20241212 to 20250228, "The Dao of Capital" by Mark Spitznagel

20241212 - Foreword

For this reason it is imperative that we identify a money that cannot be abused, that prohibits inflation, and allows responsible working citizens to prosper. Pxxi

What is it? BTC, DogeCoin or SP500 ETF based currency?

20241213 - Introduction

......shi has multiple meanings but can be thought of as strategic positional advantage. p xxvi

Winning in one strike rarely happens. For example, to get a desired job needs years of preparation, instead of just 10 minutes good performance in the job interview. To get huge profit through investment needs years of study and patience.

It's more about understanding of the world, and years of actions and patience.

20241215 - Chapter One: The Daoist Sage

So let's not think long term or short term. As Klipp's Paradox requires, let's think of time entirely differently, as intertemporal, comprised of a series of coordinated "now" moments, each providing for the next, none after the other, like a great piece of music, or beads on a string. p2

Those beads, some of them are good, and some of them are bad, and the rest are boring. How to get most profit out of them?

"Wuwei" also means a lot to daily life:

1. Stay still and don't be driven by dopamine.

2. Calm down the monkey and the elephant. Keep them in "wuwei" status!

Laozi: The farther one goes / The less one knows. p9

Internet let us to visit other people or place thousands of kilometers away in seconds. It's the ultimate tool to distract our attention.

We should catch small fish or big fish? Natural selection tells us that big fish is better. At virus and bacteria level, gene mutation happens all the time, but they rarely change the world. Major gene mutation in large organism may happen every thousands or every millions of years, and that may change the world.

No one make really good money through huge amount of frequent tiny trades.

The aim of action is "the removal of future uneasiness, be it only the future of the impending instant." p20

Most of actions are unnecessary. They are waste of time. How to remove this uneasiness/impatience without action? Live in the moment, stop the monkey and the elephant, focus on breathing and feeling.

For investing, we need to understand the trend, and then let the world envolve, and enjoy our lives.

20241219 - Chapter Two: The Forest in the Pinecone

Conifer vs angiosperms, what can I learn from it?

It's not just about investment, it also hints many other things.

1. What products or services should we create as entrepreneur? Not the one easy to make with high profit, but the one hard to make with low profit.

2. How to live a meaningful life? Essentialism is the key. With less distraction, it would be much easier to spend time on something matters.

Less is more. Be patient. Every moment is wonder. Enjoy breathing.

Wildfire is part of nature. War is part of civilization. Recession is part of economy.

They are bad to individual, but crucial to the whole system.

How to take advantage of them? Individual need to prepare for the blackswans. Entrepreneurs should build new companies during recession, as resources become much cheaper. Investors should purchase more assets during recession.

Hunger and tiring should be part of daily life. Through autophagy, the cell isolates and then devours bad things inside it - like damaged bits of mitochondria.

Don't become rich too early or too quickly or too easily. Keep life as simple as possible.

20250101 - Chapter Three: Shi

What is Shi? How to find and verify it?

There are infinite factors in Shi. What are the major ones?

What is Shi in financial investment?

What is the law of entroy in stock market. The yield rate of treasury bonds?

This topic is too large. However, I agree that Shi means indirect factors which affect the ultimate result.

Do we need to consider "the Black Swans" in Shi?

"On War" seems too hard to me.

20250103 - Chapter Four: The Seen and the Foreseen

In short, the future is at work shaping the present. (instead of adding new parts) p87

This reminds me of "quantitative change to qualitative change". Qualitative change is rare. Both shape the present.

Acquiring later stage advantage through an earlier stage disadvantage. p87

Is this similar to our daily activities? Avoiding extra (useless) information to get better understanding of the world?

Austrian school insist that historical facts cannot be used to verify economical theory. That sounds right. There are too many factors, and we cannot replicate the similar events with all factors same. For example, if someone doesn't want to accept $500 to do some task, what does that mean? That cannot approve or disapprove some theory.

Menger is amazing.

20250118 - Chapter Five: Umweg

There is roundabout method in investing. p108

For example, if we believe AI will change the world, then we can invest in computer chip manufacturing companies, such and Nvidia. Investing in tools making companies, can avoid the unpredicted final step.

Another example is about Gold Rush. During a gold rush, sell shovels!

Middle layer may have less competition, with higher profit.

Apple and Tesla, etc. are very special. They cover almost the whole supply chain.

When the physical growth of the forest and the expected future price of timber are such that they yield a greater return than the market interest rate, the opportunity cost of cutting the timber and selling at the spot price is too high; the forester should stay his axe. p120

Increase the interest rate and you shorten the profitable period of production. p120

This is the reason that the value of asset drop when interest rate hike. Less people want to buy asset(or Goods & Services) or expand their business with high interest rate.

What would happen if we keep interest rate low when inflation rate is high? Maybe need to check what causes the high inflation rate. Most likely interest rate rise won't solve the problem of hyperinflation.

Henry Ford:"The seeds of bad times are in the mistakes which we make in the good times. Yet in the good times no one wants to hear of the mistakes we may be making." p133

Bad times could be inevitable if we want to get good times. The cirtical issues are what we do in bad times and good times. In bad times, we have to focus on survival. In good times, we should focus on more savings and reservation.
As individual, we should cut expenses in bad times, work is more important than study. We should save more in good times, and study is more important than work.

The strategy of Weiqi and Baseball is similar: wait for the other side making mistakes. If the opponent is slightly better than us, we still have chance to win if play the game carefully. The patience here could be painful.

However, if we are used to be patient, then it's not painful. Good habit is critical.

20250119 - Chapter Six: Time Preference

This pattern, present in all of us and distorted to extreme and even dangerous levels in the cases of addictions, is to be impatient now, all the while holding fast to the self-delusion of being able to be patient later. p140

This is root cause of 90% of my problems. :-(

Although the present moment is all that we can experience, our future is certainly no less material. p145

That's not true.

1. The present is certain, but the future is not. We may die in accident tomorrow.

2. The faraway future is generally more important. A happy ending matters more than the struggles along the way.

Live in the moment is correct, but don't sacrifice the future for the moment. (p147)

The author got it wrong. The meaning of "live in the moment" is to avoid getting controlled by the Monkey or the Elephant, to control our lives.

1. We are impatient about near term future, but patient about faraway future;

2. Good development normally means slow in short time, but progress fast in long term. This is because it needs solid foundation. For example, the growing of conifer, or the building of skyscraper.

Combined with these two, most people cannot find good companies in market.

Vierordt’s Law(Amara's Law or Gates' Law): The tendency to overestimate short-term progress and underestimate long-term progress.

https://medium.com/@captainshelby13/why-we-overestimate-short-term-wins-and-underestimate-long-term-gains-255b7e168fda

How to solve this problem?

20250204 - Chapter Seven: "The Market Is a Process"

He might possibly also consider that consumers who are saving now could be expected to buy more things like lumber in the future. p188

During depression, cash is the king. People need cash to pay bills, ambitious and brave entrepreneurs need cash to expand their business, if they expecting that people will buy more things in the future.
So everyone needs to save money for safety buffer before crises arriving.

What if the depression is caused by bubble burst? Then the market need more time to consume extra inventory, so the depression will last for longer time.

What if supply exceeds demand? Focus high tech creativity. That would either increase efficiency/productivity, or important invention which give people better lives. The latter leads to more demand.

The MS index remains a robust indicator of the relationship between the aggregate return on invested capital and the associated opportunity cost. p189

MS index = long term total return / near term return and the expected (associated compound) interest

Artifically low interest rates actually means QE(quantitative easing). It could come from commerical banks, such as what happened in 2008, but it also could come from Central Banks, such as COVID-19 period. The latter is the right time to use QE, but not the former one.

Is UBI or UHI(universal high income) a type of QE? What would Mises think about AI and UHI?

In the Austrian view, the familiar business cycle that periodically plagues modern market economies is the result of government intervention in money and banking. p199

Correct. However, why did government intervene? Because of the oversupply of goods and services, and wealth is too distributed evenly cross the whole society.

How to solve the problem?

1. Invent something new and valuable, to increase demand; (TV set, air conditioner, washing machine, car, etc.)

2. Build new infrastructure; (new highway road, new railway, etc.)

3. Export the surplus to other countries. (Japan, Korea, China, etc.)

What if none of these is available? Rat race.

The price of goods will keep dropping, thanks to production automation, but the price of service will keep going up.

What if AI robots can provide all services?
That's the ultimate challenge to economy development.

20250207 - Chapter Eight: Homeostasis

Spontaneous order is interrupted (and as we have seen, often perilously) by top-down control from intervention to full-on socialism. p219

Just like what it says in "The Narrow Corridor" by Daron Acemoglu and James A. Robinson, top-down control not necessarily bad. Social security system can only be built by government.

Hyman Minsky believed that as the market goes up for an extended period of time without any corrections, the total leverage in the financial sector gradually increases, making the system ever-more tenuous. p220

Is QE a type of leveraging? Is it borrowing money from the future?

Without UBI, how can we handle it if all jobs are taken by AI and robots?

Flood is not really caused by dams(interventions). Yes, social security system lowered the personal saving percentage, but, that's not enough to convince people to cancel social welfare system.

The only way to make a system robust, is to add buffer everywhere. Everyone needs bank savings and own their property(and pay off the loan), every company and country needs some similar buffer. Critical parts need redundency, such as government party, hospital, millitary army, etc. Redundancies is the key to avoid collapse.

The hard part is, how to punish the people with no sufficient bank savings? Or reward the people with sufficient bank savings? And how to do the same to companies and governments?

The strategic positional advantage(shi) is all about the black swans. Stay in good position to handle the impact.

I should keep two points in mind all the time:

1. Automation leads to the oversupply of goods and services;

2. The Black Swans may come anytime.

20250224 - Chapter Nine: Austrian Investing I: The Eagle and the Swan

The MS index is very well represented by what is known as the (Tobin's) Equity Q ratio - total U.S. corporate equity divided by total U.S. corporate net worth. p231

https://www.advisorperspectives.com/dshort/updates/2025/02/04/qratio-market-valuation-january-2025

Mr Spitznagel recommend to sell or buy when Tobin's Q is out of 1.6 and 0.7 scope. p236

However, currently there is a critical factors significantly different fromt he past.

Oversupply of Goods & Services in major countries(the result of production automation).

Quantitative Easing(QE) pushes up Tobin's Q. Disruption of supply chain(undersupply of Goods and Services) pushes it down.

Will Quantitative Tightening(QT) and anti-globlization pushes it down?

Maybe the average Tobin's Q is not 0.83 anymore, as the long term historical data suggested, but 1.5?

Austrian Investing I is to buy SP500 index put at 0.5% per month, when Q Ration is above 1.7.

20250227 - Chapter Ten: Austrian Investing II: Siegfried

Tesla's ROIC at 202502 is 9.32%

https://www.financecharts.com/stocks/TSLA/value/roic

It's pretty low comparing to Apple.
https://www.financecharts.com/stocks/AAPL/value/roic

But car companies' ROIC are low in general.

https://www.financecharts.com/stocks/TM/value/roic

https://www.financecharts.com/stocks/F/value/roic

High ROIC and low Faustmann Ratio, are the major conditions we can use to check companies' investment criterias.

https://www.seeitmarket.com/return-on-invested-capital-roic-market-valuations-stocks-15708/

Faustmann Ratio = Market Capitalization of Equity / Net Worth

ROIC = Earnings Before Interest and Taxes (EBIT) / Invested Capital

If two companies have same ROIC and Faustmann Ratio, that doesn't mean they have same potential for investment. We need to consider many factors, including the capability of the CEO and the industrial trend.

What's the best way to choose companies? For most people, it's way too hard.

20250228 - Epilogue

Gum tree is a better example than conifer. Gum tree is obvious winner in Australia land, because they almost welcome wild fire.

AI: Over the past several thousand years, gum trees (Eucalyptus species) have expanded their range in Australia, while native conifer populations have remained relatively stable or even contracted.

Gum tree and conifer share many similar features. For example, they have superior longivity.

It seems these two trees are suitable to different environment. Gum tree likes dry, hot environment, Conifers like wet, chill environment.

Roundabout routes could be quite different.