Mark Spitznagel Does Things Differently, And It Certainly Seems To Be Working

Mark Spitznagel is not a conformist. He’s farming like a 19th century Frenchman, and in his day job, his views are “diametrically opposed" to virtually every single investor — while still delivering almost unbelievable returns to his clients (he reportedly posted a 3,600 percent return for clients in March 2020, while the rest of the investment world was tumbling down). Spitznagel owns multi-billion dollar investment firm Universa Investments, and with his wife owns Idyll Farms in Northport and are majority owners of Leelanau Cheese, both located in the county, a place he calls his "favorite place on earth.” And though he’s notoriously private, he granted The Leelanau Ticker an interview as his new book, Safe Haven, Investing for Financial Storms, hits the shelves.

Leelanau Ticker: I know you don’t do a lot of interviews, so thank you. And we have a lot to cover, but let's start with the goats! Tell people little bit about Idyll Farms.
Spitznagel: It’s kind of a thing my wife and I sort of trekked into; it wasn’t some sort of top-down master plan. We knew we wanted to be in farming — sustainable farming — and there was a farm available. We had our summer home up there at the time, ten years ago. It just became obvious we wanted to do pastured herbivores. There are a handful of consumables that are attached to a place, like cheese. It takes on the terroir of the region, which was important to us too. So we decided to do it in a way that we could make a product with the goal of being among the best in the world, and the more we got into it, the more really captivated we were by this idea of the relationship between herbivores and the pasture.

Leelanau Ticker: And you’ve won some incredible awards around the world for your cheese.
Spitznagel: It’s working. We have incredible people on the farm and at the creamery. In addition to our head cheesemaker's talent, our secret really is what we get from goats on the pasture. And it’s awesome that it’s good for all parties involved: the goats, the land, the environment. And we’re doing it all not in spite of doing the right way, but because we are doing it the right way. The vast majority of our competitors follow much more of a factory farming model. 

Leelanau Ticker: In your other business, you’re owner and chief investment officer of Universa Investments, a hedge fund firm. Tell folks what you do.
Spitznagel: Well, it’s a hedge fund but more literally than what you’d get from what we’ve come to know as a hedge fund. That word has become a misnomer; hedge funds don’t do much hedging for their end user. We speculate against market losses. That’s why we exist. And we do that in a cost effective way.

Leelanau Ticker: But what you do and how you do it are very unorthodox. You say “a small loss is a good loss” and "don’t make forecasts or predict." Meanwhile, your returns far outpaced the S&P for more than a decade. 
Spitznagel: My approach is diametrically opposed to virtually all investors: It’s to lose a very small amount a vast majority of the time. And then on very rare occasions, make a whole lot. And in doing so, we lower risk in a client’s portfolio. And that’s versus that approach of consistent, small profits. So we take the exact opposite shape that everybody else does. There aren't very many areas in investing that are not well-trodden and crowded.

Leelanau Ticker: You talk about losing money until those very rare occasions. I’ve read you earned a 3,600 percent return in March 2020, when the S&P was down something like 30 percent. 
Spitznagel: That certainly does qualify as one of those rare occasions. I can’t comment on those returns, but we did what we aimed to do in that environment. You know, any punter can come up with a plan for a [investment] trade in a crash. But a plan that doesn’t give all that [money] back the rest of the time? That's the trick.

Leelanau Ticker: And so do you often predict when a crash or event is coming, or doesn’t it matter?
Spitznagel: It definitely doesn’t matter. Sometimes I do. One could objectively say some markets are more prone to a crash than others, but it doesn’t matter. I have the luxury of remaining agnostic to it all. But it’s hard for anyone who’s been in the game to not buy into that whole cycle. So the next crash is never like the last crash, and when markets get stretched liked they certainly are today, they have a tendency to stretch even further. So it’s difficult to make a timing call.

Leelanau Ticker: I’m guessing you’re not a fan of the Federal Reserve and their current policy...
Spitznagel: We’ve come so far with central bank interventions in the market that I don’t know how they can ever walk away. I’ve been saying this for something like a decade. I don’t see how they will ever be able to back out of this. You might recall in late 2018 they threatened to, but the market called their bluff. I just think they’re in a corner. I wouldn’t want to be in fed governance, and it’s a huge problem for investors. It’s truly unsustainable, though I really do hope it can continue for rest of our lives. 

Leelanau Ticker: What about alternative places to put one’s money?
Spitznagel: I’m never going to criticize someone for investing in something they think they have an edge in. But I’m cognizant in this current world that all risk assets — and that includes crypto — are really probably all the same bet. They have the same single variable driving them, so you’re just not going to get the diversification you think you’re going to get. That’s probably the biggest trap of the monetary-distorted world we’re in. It drives everything. It’s just hard to find something that will not do very poorly in the next crash. 

Leelanau Ticker: Let’s talk about your book. It’s your second. What’s it about? 
Spitznagel: It’s sort of introspective about what I do as an investor. It asks the fundamental question: Why do and should people engage in risk mitigation as investors? It is what makes investing investing. It’s why we create a portfolio, but the funny thing is we never sit back and ask “what is the goal?” 

Leelanau Ticker: I’ve read some reviews. One called it “spectacular,” and another said it reads like it was "written by poet." 
Spitznagel: I’ll take that. It took me years, just because I have a day job and I’ve been busy. I think I’ve punted on it 3-4 times. 

Leelanau Ticker: We are the Leelanau Ticker after all. Do you have any stories about life or connections up here?
Spitznagel: I do very much. It’s my favorite place on earth and always will be. I spent first through fifth grades at Northport School. My dad was a minister at Trinity Church in Northport. But then we moved away, and I became a fudgie and unfortunately lost contact with all my good friends there. We continued to summer on Omena Point, where my mom still has a place. And then Amy and I with the kids decided to get our roots back. Luckily we found a 100-year old log home on Northport Point, and you can actually see our [Idyll] farm from our beach across the bay.

Leelanau Ticker: Seems like Northport has seen more change in 18 months than in the previous 10 years.
Spitznagel: You’re right, yet in totality, the change in last 30 years has been extremely small. I think the change we’re seeing now is a wonderful thing. There are great things happening there, while it retains its charm.

Leelanau Ticker: I know you’ve hosted some very successful and influential people up in Northport. What do these folks say about the area who have never been here before? 
Spitznagel: They kind of parrot the things I just said. You can’t find places like this in this day and age. It’s like Napa in the ‘60s. But modernity has ruined most places with tourism. Tourism is a good thing for the most part, but has a way of sapping the authenticity most times. We’ve found a wonderful balance here. But it also remains a bit of a secret. You need that delicate balance. It’s kind of like me and what I do: I have clients and I want people to appreciate what I do, but I don’t want the world to know, or I’m out of business.