The Fat Tail: The Power of Political Knowledge for Strategic Investing (Hardcover)

~ (Author), Preston Keat (Author)
Key Phrases: Lázaro Cárdenas, Teléfonos de México, sovereign credit defaults, United States, New York, World War (more...)

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.)
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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: 9.3 x 6.3 x 1.1 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (44 customer reviews)
• Amazon.com Sales Rank: #89,569 in Books (See Bestsellers in Books)

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Customer Reviews

Most Helpful Customer Reviews

7 of 7 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 (TOP 500 REVIEWER)    (REAL NAME)

(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.

10 of 12 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 (REAL NAME)

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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 10 people found the following review helpful:

4.0 out of 5 stars An interesting review of political risk in international business, January 29, 2009

By	Befragt (Chicago, IL USA) - See all my reviews

(What's this?)

This book presents an insightful, interesting and thought-provoking argument that the private sector fails to recognize political risks when making investment decisions. The discussion moves from political science to history to economics to discussions of human nature that border on "behavioral finance." The variety of anecdotes and examples from around the world and various historical periods helps keep the book lively, although because of its subject matter, it cannot be characterized as an "easy read."

The authors propose that businesses need to develop "comprehensive and systematic tools" to recognize political risks. They freely acknowledge that there is much that can't be predicted, but they persuasively argue that there are some "fat tail" risks that, with appropriate investigation and insight, can be predicted or at least that damage relating to such risks can be minimized.

This book is not a "how to" manual directed at how to invest abroad. Instead it provides a basic introduction to political risk analysis and how to direct or focus such an analysis. Realistically, the target audience is fairly corporate decision makers with companies engaged in multinational operations, and possibly sophisticated investors making direct investments abroad. These are likely people who are engaging political risk experts and framing the issues/expectations - not so much the people who are providing analysis themselves.

One passage illustrates this point:

"The eruption of a civil war need not force a company's immediate withdrawal from the country in question. A careful and detailed project-specific analysis of the political risks involved may even help identify business opportunities."

The book itself does not state how to conduct risk analysis, but it does provide a wide-ranging and interesting overview of what a comprehensive political risk analysis should look like, and it examines various factors that could or should be included.

As a huge fan of Taleb's "The Black Swan," I found their attempts to embrace Taleb's "fat tail" idea yet differentiate the types of risk that can be predicted quite interesting. Although they embrace portions of Taleb's thesis, they argue that Taleb's focus on catastrophic events fails to account for a much larger number of less-disruptive, predictable political events. In this regard, the authors obviously reject the nihilistic elements of Taleb's theories. On the other hand, adherents to Taleb might argue that the authors place too much credence on "experts" and that the process they propose is inherently subject to cognitive and other risks (to their credit, the authors freely discuss problems with political intelligence gathering and analysis throughout the book). As someone who has had family and friends involved in international affairs, I believe that while political intelligence is useful, much of what passes as "intelligence" isn't. Certainly, there have been a number of well-publicized unanticipated geopolitical incidents where almost everyone missed the boat - think of 9/11, Rwanda, etc.

I would recommend that anyone reading this book read "The Black Swan" as well and form their own opinion about which work is most appropriate.

In sum,this is a good book worth reading. Certainly, managers of businesses engaged in multinational operations (and possibly even only domestically) may find the book quite insightful. I suspect that most people who subscribe to publications like "The Economist" would really enjoy this book. However, it is not for most individual investors or casual readers.