Mark Spitznagel on Market Fragility, Goat Farming After 4,144% Return

  • These days, Mark Spitznagel’s favorite place in the world is not the trading floor but his goat farm.
  • The founder of Universa Investments gave Insider a tour of his Idyll Farms in Northport, Michigan. 
  • He shared why modern agriculture, like modern finance, has been made fragile by government interventionism.

It’s mid-October and prime hunting season in Northport, Michigan, a small village perched on the edge of Lake Michigan, and the childhood home of Mark Spitznagel.

Spitznagel is taking in the view of his house across the Northport Bay and patting about a dozen goats as they rub their heads and necks against him, a sign of affection.  

“It’s cool hanging out with them. It’s kind of like, you’re not alone and yet you are. It’s a nice combination of the two,” Spitznagel told Insider in an interview at his decade-old goat farm.

Mark Spitznagel

Mark Spitznagel and his wife bought Idyll Farms in 2010.

Vicky Ge Huang/Insider

When Spitznagel bought Idyll Farms, aptly named to evoke the picturesque and peaceful countryside, it consisted solely of a 170-year-old barn with desertified areas and no animals. Today, it encompasses over 600 acres of land. Besides serving as the home to between 300 and 500 Alpine goats at any given time, the farmstead also houses a creamery that produces award-winning goat cheese. 

Idyll Farms

When the Spitznagels bought Idyll Farms, it consisted solely of a barn that dates back to 1850.

Vicky Ge Huang/Insider

Spitznagel does not want to take any credit. From breeding to cheese making, the work is all done by his wife Amy Spitznagel, farm manager and head cheese maker Melissa Hiles, and the 10 to 20 workers on the farm (depending on seasons). While he has evidently acquired the expertise of a modern goat farmer, Spitznagel is nevertheless better known as the president and chief investment officer of Universa Investments

The Miami-based hedge fund, which manages about $14 billion in assets, specializes in a risk mitigation strategy that involves taking small losses for long periods to purchase protection — in the forms of options contracts — against a major market crash.

Take the Covid-19 crisis for example, when the Cboe


Index, or VIX, hit an all-time high of 82.69 and the S&P plunged 30% in March 2020. Universa’s flagship “Black Swan Protection Protocol” fund returned 4,144% for the first quarter of that year. (Insider and other news outlets reported on the returns last year, which were based on gains from the hedges themselves rather than the entire portfolio.)

Universa has also posted impressive results over the long term, achieving a life-to-date average annual return on invested capital of 105.2% from January 1, 2008, to December 31, 2019, according to an Ernst & Young audit letter Insider viewed. 

Interventionism in modern agriculture and modern finance 

Spitznagel and his wife grew up in northern Michigan and went to Kalamazoo College. Despite once living in a $7.5 million French-style villa that Jennifer Lopez owned, the couple yearned to spend summers in the Great Lakes State.

Spitznagel said he wanted to go into farming because he saw the value of “knowing where your food comes from and taking part in it.” But it didn’t take him long to identify that modern agriculture, much like modern finance, has grown very fragile for very similar reasons.

In his view, just like modern finance relies on central bank monetary interventionism, modern agriculture is similarly dependent on government intervention to work.

In modern industrial farming, the vast majority of farm animals are raised on factory farms and fed grain diets for production.

By putting the animals off-pasture and using land to grow monoculture crops, many factory farms have resorted to tillage — the act of preparing and cultivating land for crops such as corn and soybeans. Tillage can damage the soil over the long term, lead to a lack of carbon sequestration, and even wipe out rabbit populations.

“Government interventionism is part of what makes modern industrial farming work. We subsidize grain prices, chemical fertilizers, and herbicides, we subsidize low oil prices as well,” he said. “All of this is needed for modern industrial farming to work. It looks efficient but we end up with something that’s extremely fragile and government dependent. None of those things can fail on us or the house of cards comes down.”

A Libertarian and advocate of Austrian economics, Spitznagel has made sure that all Idyll Farms’ goats are humanely raised and pasture-fed. He said the vertically integrated process has not only proved self-sustaining but also given them more control over the quality of the goat milk and cheese produced at the farm.

“This is the only way it’s supposed to be. Ruminants are supposed to be out on the grass like this, they’re not supposed to be locked indoors and fed a high sugary grain diet, which is a very reductionist approach,” he said. “We don’t appreciate how ruminants on pasture provides a whole that is so much greater than the sum of the parts, from top soil production to carbon sequestration to greater nutrition.”

Goats at Idyll Farms

There are 300 to 500 goats at Idyll Farms at any given time, depending on kidding cycle.

Vicky Ge Huang/Insider

The cure that’s worse than the disease 

Since the 2008 global financial crisis, central bank monetary interventionism has become unfettered. Tail-risk hedging strategies, which Spitznagel pioneered, have also taken on a life of their own and mushroomed.

Despite his name being almost synonymous with such strategies, Spitznagel stressed that his fund could not be more different from the many strategies marketing themselves under the same name today. 

In fact, he calls most — if not all — of such strategies “the cure that’s worse than the disease.”

“I wouldn’t want to be doing or knowing today only what I knew 20 years ago. There’s a learning curve to all this,” he said. “Sometimes you have to live through it to understand it. Our competitors, to the extent that we have any, are down that curve.”

Spitznagel has certainly lived through enough market crashes to be skeptical of the investment industry’s reliance on modern portfolio theory.

Pioneered by American economist Harry Markowitz, modern portfolio theory asks investors to focus on diversification and risk-adjusted returns. Markowitz argues that by spreading risks across multiple asset classes, investors can reduce idiosyncratic risks and protect the overall portfolio against downside risks. 

However, through major market crashes in the past few decades, Spitznagel has never seen diversification provide the kind of downside protection that investors expected because “crash correlations are so uncertain.”

“In the last 10 years, as the markets have gone up a lot, diversification has massively cost people their wealth for arguably little protection,” he said. “Risk parity has cost untold fortunes just because it’s so underperformed, because it’s a diversifying strategy.” 

For Spitznagel, the point of investing is to maximize investors’ wealth over time. If a strategy that makes more money in a crash ends up costing investors even more the rest of the time in their portfolio, then it’s not cost-effective risk mitigation. 

“The whole profession of investing is built around this idea of risk-adjusted returns,” he said. “People choose their scoreboard and they’ve chosen the modern portfolio theory scoreboard because it’s an easy one to win at. Unfortunately, it’s not the one that matters, [which is] actual compound returns.”

We’re living in the age of punters

As someone who makes loads of money when extreme market events happen, Spitznagel does not claim any edge whatsoever in predicting exactly when the next crash is happening.

In fact, he thinks forecasting shouldn’t even be part of investing. But markets today are driven by “an obvious gambling mood,” which is reflected in everything from the plethora of sporting betting apps to the frothiness in cryptocurrencies, baseball cards, startup valuations, and even Rolex watches.

“All these things are without any intrinsic value, they go up simply based on adding more people, adding the scope,” he said, “and that is a pyramid scheme by definition.”

So what’s a retail investor to do in today’s market environment? Spitznagel encourages people to think about what their goals are in risk mitigation and what their perceived edges are in that. 

But he is not giving out any easy solutions because a shortcut is not going to help. 

“It would be very easy for me to identify a particular option or asset that looks good right now, that maybe would make sense to add to a portfolio for cost-effective risk mitigation, but then there’s management that goes with that,” he said. “You’d have to know how to monetize that at the right time and roll or re-calibrate that on an ongoing basis. This is very hard. I would be doing a great disservice to the public.”

In his view, any punter can devise a strategy that does well in a crash regardless of its cost the rest of the time, but profits should be hard to come by.

“There needs to be something special about you to make a high return on capital,” he said. “You can’t just be a punter that got it right along with everyone else. Just dumb-luck is not sustainable. We’re living in the age of punters.”

Of course, all boom-and-bust cycles come to an end eventually. Yet the longer the frenzy lasts, the worse the crash will be in both the stock market and all speculative markets, as Spitznagel knows all too well. 

“If it were to last another 20 years, it will end up in one way or another, in all likelihood, screwing a tremendous amount of people,” he said. “You will have entire retirement accounts and then you’ll have pension funds in there. That would be the worst-case scenario. The sooner this boom turns to bust the better it will be for society.”

Crash bang for the buck 

With the Fed seemingly willing to adjust monetary policies at any signs of a sell-off to support the market, it is effectively playing the role of a risk mitigator. 

Spitznagel warned that investors may think they can rely on central banks to backstop the markets, they need to take into consideration the diminishing marginal utility of their quantitative easing. 

“Every time that they re-up this Fed put in the form of QE, their ability to do that goes down by definition,” he said.

Ultimately, when it comes to his strategy, Spitznagel is not worried about central bank interventionism, which he said has created complacency and the perception that there is little risk. His edge is patience — the same under-appreciated quality of investing legends like Warren Buffett and Charlie Munger. 

“Being able to sit and wait and look like a fool over long periods of time is a durable edge that I have because people can’t do that,” Spitznagel said, “hedge fund managers certainly can’t do that.”

Perhaps the same goes for his goat farm. Free from government interventionism, its pastures can “naturally evolve and explode in health and productivity” thanks to its managed grazing practices. 

“Big corporations wouldn’t be able to do that,” he said. “They need immediate gratification.”