The Fat Tail: The Power of Political Knowledge for Strategic Investing [Hardcover]

Ian Bremmer (Author), Preston Keat (Author)

Book Description

Publication Date: March 9, 2009

In recent years, investors have learned the hard truth that in the international economy, politics often matters at least as much as economic fundamentals for the performance of global markets. Too many companies and investors haven't yet learned to read the warning signs: their expertise lies much more in economics than politics, and the temptation is to hope that highly volatile situations such as the 2008 Georgia-Russia confrontation will be few and far between. But as Ian Bremmer and Preston Keat demonstrate, these scenarios--and their catastrophic effects on business--happen much more frequently than we imagine. On the curve that charts both the frequency of these events and the power of their impact, the 'tail' of extreme political instability is not reassuringly thin but dangerously fat.

This groundbreaking book is the first to both identify the wide range of political risks that global firms face and show investors how to effectively manage them. Written by two of the world's leading figures in political risk management, it reveals that while the world remains exceedingly risky for businesses, it is by no means incomprehensible. Political risk is unpredictable, but it is easier to analyze and manage than most people think. Applying the lessons of world history, Bremmer and Keat survey a vast range of contemporary risky situations, from stable markets like the United States or Japan, where politically driven regulation can still dramatically effect business, to more precarious places like Iran, China, Russia, Turkey, Mexico, and Nigeria, where private property is less secure and energy politics sparks constant volatility. The book sheds light on a wide array of political risks--risks that stem from great power rivalries, terrorist groups, government takeover of private property, weak leaders and internal strife, and even the "black swans" that defy prediction. But more importantly, the authors provide a wealth of unique methods, tools, and concepts to help corporations, money managers, and policy makers understand political risk, showing when and how political risk analysis works--and when it does not.

Authored by Ian Bremmer (author of the bestselling The J-Curve) and Preston Keat, the president and research director (respectively) of Eurasia Group, the world's leading political risk consultancy firm, The Fat Tail is an indispensable guide for anyone involved in the international economy.

Editorial Reviews

From Publishers Weekly

Bremmer and Keat, executives at Eurasia Group, explore how global political risks influence the business world in this cogently argued analysis. The book details key areas corporations must be wary of in order to survive in the new global economy including foreign laws and regulation, government changes, civil unrest, expropriation, terrorism and war. With excellent examples, the authors demonstrate how planning for such political developments may make or break a company. It's the difference between Morgan Stanley and the Bank of New York in the aftermath of the September 11 terrorist attacks. Both companies had large offices in or near the twin towers. Morgan Stanley had an emergency plan and the Bank of New York didn't; one suffered minor disruption and the other suffered extreme loss of business momentum. These persuasive case studies want for a clearer summary of how to actually implement plans that fortify companies in such situations. This is not a field guide but a sketch of the landscape, not a consulting session but an overview. It remains for the individual or corporation to take the initiative to further pursue the assessments needed to mitigate any risk. (Mar.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

Review

"The Fat Tail delivers practical wisdom on the impact of political risk on firms of every description and valuable advice on how to use it. Ian Bremmer and Preston Keat offer innovative thinking and useful insight that will help business decision-makers find fresh answers to questions they may not yet know they have." --Fareed Zakaria, author of The Post-American World

"Political risk has become increasingly complex, and The Fat Tail provides a truly new way to quantitatively assess it in established and emerging markets. It is essential reading for any CEO with multinational interests." --Randall Stephenson, Chairman, CEO and President, AT&T Inc.

"Bremmer and Keat are right: economics produces cycles and even crises, but it is politics that has the power to turn crises into profound and lasting dramas. Their book should be essential reading for anyone involved in international business even-perhaps especially-in places that seem politically stable." --Bill Emmott, editor-in-chief of The Economist 1996-2003 and author of Rivals

"In an uncertain age in which everyone from individual investors and CEOs to journalists and heads of state seems at times to be grasping in the dark for insights to where we are heading, Ian Bremmer and Preston Keat have given us a unique roadmap, a forecasting toolkit that shines a light on our possible futures." --Robert Kagan, author of The Return of History and the End of Dreams

"Wary of political risk and what it can do for you? Read this book which provides, replete with significant examples, how this growing art, with touches of science, can help you understand markets, investment climate, and the many changing economic circumstances impacted by critical political and security events around the world. Bremmer and Keat, both masters of this medium with many years experience, tell us how to understand political events and to gauge their impact on the critical business and economic decisions that many of us must make daily." --Thomas R Pickering, former Under Secretary of State for Political Affairs and US Ambassador to Jordan, Nigeria, El Salvador, Israel, the United Nations, India and Russia

"Bremmer and Keat, executives at Eurasia Group, explore how global political risks influence the business world in this cogently argued analysis. The book details key areas corporations must be wary of in order to survive in the new global economy including foreign laws and regulation, government changes, civil unrest, expropriation, terrorism and war. With excellent examples, the authors demonstrate how planning for such political developments may make or break a company." --Publisher's Weekly

"In these times of heightened geopolitical risk, political knowledge has become a hard currency. Ian Bremmer and Preston Keat have made an important contribution to the world of risk mitigation and business continuity in The Fat Tail." --Muhtar Kent, President and Chief Executive Officer, The Coca-Cola Company

"Ian Bremmer and Preston Keat have worked for years on the cutting edge of political risk management, and The Fat Tail provides us with a definite survey of the subject. It will be indispensible for global investors." --Nouriel Roubini, Professor of Economics and International Business, Stern School of Business, New York University

See all Editorial Reviews

Product Details

• Hardcover: 272 pages
• Publisher: Oxford University Press, USA (March 9, 2009)
• Language: English
• ISBN-10: 0195328558
• ISBN-13: 978-0195328554
• Product Dimensions: 9.5 x 6.2 x 1 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 3.9 out of 5 stars  See all reviews (48 customer reviews)
• Amazon Best Sellers Rank: #672,295 in Books (See Top 100 in Books)

More About the Author

Ian Bremmer is the president of Eurasia Group, the world's leading global political risk research and consulting firm. He has written for The Wall Street Journal, The Washington Post, Newsweek, Foreign Affairs, and other publications, and his previous books are The J Curve: A New Way to Understand Why Nations Rise and Fall and The Fat Tail: The Power of Political Knowledge for Strategic Investing.

Customer Reviews

Most Helpful Customer Reviews

19 of 19 people found the following review helpful:

4.0 out of 5 stars Business Risk and the Global Economy, March 27, 2009

By 

Bryan Carey "Bryan Carey" (Houston, TX) - See all my reviews
(VINE VOICE)    (TOP 1000 REVIEWER)    (REAL NAME)   

This review is from: The Fat Tail: The Power of Political Knowledge for Strategic Investing (Hardcover)

(What's this?)

Risk is an inherent part of business and anyone who has managed a business at any level knows that risk comes into play on a daily basis. In today's modern, global economy, the risks are greater than before and are often more difficult to predict. The Fat Tail is a book that discusses many of these unique risks, offering some ideas for spotting these risks and taking the proper precautions to make sure the effects are minimized.

I have worked for many years in management and I am fully aware of these additional risks. It would be nice if risk was limited to supply/demand issues or employee retention but, unfortunately, risk is much more widespread than in the past and we have the global economy to thank for much of this. Some precautions can be taken, but there are some risks that cannot be controlled as well as others. A civil war, excessive regulation, foreign currency exchange issues, expropriation, and many other unforeseen events can cause a drastic change to the business climate and thus have a dramatic effect on business. The Fat Tail discusses these many different types of risk that we, as managers, face in the new century and I can relate directly to what much of it says.

To backup its key points, The Fat Tail offers many examples from history that show how an unexpected event led to complete turmoil in every facet of life. In the past, revolutions and the lack of sufficient warnings were often cited among the many reasons why businesses suffered extraordinary losses. Today, certain countries of the world are known for their political instability and information regarding instability is more easily obtained, thanks to the information age in which we live. However, there are new risks today that are not always easy to predict, such as state failure, terrorism, expropriation, and more. And the fact that nothing has happened yet in a particular country is one of the main reasons why the potential for business disaster is so great. Like The Fat Tail points out, management personnel tends to get too relaxed when nothing bad has happened for a period of time and because of this, they are likely to let their guard down. Thus, when a political problem arises, many businesses will be trapped in a no- win predicament that could cost millions and could possibly even bankrupt the company.

The Fat Tail is written in a very academic way. The authors write this book like graduate- level university students composing a long research paper. They forgo creative writing skill in favor of the facts. They want you, the middle or upper manager of a business, to know the potential problems that await you if you do not take foreign risks more seriously. They offer historic examples that show what can happen if you develop the dangerous attitude that says "it can't happen to us". They want companies to be prepared for the worst and they offer some advice on ways to stay alert and protect one's business interests.

Risk is all around us and its complexity is greater than ever before. Management personnel in the United States are fully aware of the problems that can result due to terrorism but terrorism is only one of many potential disasters that businesses face each day. Refusing to recognize these threats and failing to take any precautions could lead to serious problems down the road and The Fat Tail wants to make sure that businesses, as well as individual investors, are prepared for the worst.

16 of 18 people found the following review helpful:

4.0 out of 5 stars A helpful look at how global politics can affect investing, February 9, 2009

By 

Edward Durney (San Francisco) - See all my reviews
(VINE VOICE)    (REAL NAME)   

This review is from: The Fat Tail: The Power of Political Knowledge for Strategic Investing (Hardcover)

(What's this?)

I've read many books on investing. But none of them covered this topic - how global politics can affect investing. As the book's title suggests, political risks often fall into a "fat tail," the spot on a bell curve where you would expect the probability to tail off, but where it instead remains high or "fat."

That means political risks should be given close attention, since they can mean more than we might otherwise think. They often turn out to be Nassim Nicholas Taleb's "black swans" that are unsuspected until they are spotted. The "unknown unknowns" that Donald Rumsfeld famously talked about. The more we can learn about these risks, the less risk we will take.

The book's authors make their living at the Eurasia Group, which does this type of political risk analysis for companies for a fee. So they try to hard to show that "political risk matters" (the first sentence in the book). They do a pretty good job of making their case, with a slew of stories from history that show how political risks have turned good investments bad.

As good as the stories are, from the initial conquest of India in 1757 by a private army hired by a British corporation to the Russian government's default in 1998 on its debt, the quotations heading each chapter were also gems. Like Alfred Hitchcock's "There is no terror in a bang, only in the anticipation of it" heads Chapter 6: Terrorism. And citing rules like "buy when there is blood in the streets" brings powerful images to the often staid world of investing.

Just one caution about the book. Its original subtitle was "The Power of Political Knowledge in an Uncertain World." That's more what the book is about. The subtitle later chosen - "The Power of Political Knowledge for Strategic Investing" - seems a bit off focus. This is a book about minimizing risk, not maximizing return, as the later subtitle suggests.

This book takes a look at history from an interesting, and rather unique, angle. I enjoyed reading it.

8 of 8 people found the following review helpful:

5.0 out of 5 stars Political risk may affect your investments, August 12, 2009

By 

Mariusz Skonieczny "Author" (Schaumburg, IL) - See all my reviews
(REAL NAME)   

This review is from: The Fat Tail: The Power of Political Knowledge for Strategic Investing (Hardcover)

Investors may evaluate the current state of the economy and read the financial statements of individual companies, but few ever consider the political issues in their investment decisions. The authors of this book argue that the political climate is important to investing. Remember when Russia defaulted on its debt? This single event started the collapse of Long Term Capital Management, which almost brought the entire financial system to ruin.

The authors say because world trade is becoming more global, it is becoming more important than ever not to ignore political risk. I thought this book was worth reading.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market