Financial Crisis
In 2008, Spitznagel's Universa funds scored returns of over 100% as the Standard & Poor's 500-stock index lost over a third of its value during the global financial meltdown, making him “a fortune” according to The Wall Street Journal. Universa lost back about 4% in 2009 and 2010 when the S&P 500 recovered by over 40%.
Spitznagel specifically targets very “lumpy returns” (what Forbes has called “a string of mediocre results interrupted occasionally by spectacular years”) which “ultimately keep away competitors,” an esoteric approach he refers to as “time arbitrage” (for which he has been dubbed “the Dr. Who of hedge funds”).
The Wall Street Journal alleged that a large purchase of put options by Spitznagel in the minutes leading up to the May 6, 2010 “flash crash” (when the Dow lost over 9% of its value during the day) was among its primary triggers (and for which Spitznagel was subpoenaed by the U.S. Securities and Exchange Commission).
Since his very timely 2008 market call in his private funds, Spitznagel has made similarly timed market calls. In July 2009, Spitznagel opened a fund betting on inflation—with a Wall Street Journal front-page headline reporting “Spitznagel Bets Reputation on Inflation” (after which the price of gold approximately doubled over the next two years, and Spitznagel's fund made 20% annual gains). In June 2011, CNBC reported on a research piece by Spitznagel (The Dao of Corporate Finance, Q Ratios, and Stock Market Crashes) which predicted a 20% correction in the S&P 500 stock index, based on “stock valuations (specifically the Q ratio) put in the context of 110 years of stock-market history” (and the S&P 500 subsequently lost 20% within four months, as Spitznagel's funds reaped from 20% to up to 10-fold gains).
Read more about this topic: Mark Spitznagel
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