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Geopolitical Alpha: An Investment Framework for Predicting the Future 1st Edition
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Forecast geopolitics and markets with this clear and insightful resource
Geopolitical Alpha – An Investment Framework for Predicting the Future provides readers with an original and compelling approach to forecasting the future and beating the markets while doing so. Persuasively written by author, investment strategist, and geopolitical analyst Marko Papic, the book applies a novel framework for making sense of the cacophony of geopolitical risks with the eye towards generating investment-relevant insights.
Geopolitical Alpha posits that investors should ignore the media-hyped narratives, insights from "smoke-filled rooms," and most of their political consultants and, instead, focus exclusively on the measurable, material constraints facing policymakers. In the tug-of-war between policymaker preferences and their constraints, the latter always win out in the end. Papic uses a wealth of examples from the past decade to illustrate how one can use his constraint-framework to generate Geopolitical Alpha. In the process, the book discusses:
- What paradigm shifts will drive investment returns over the next decade
- Why investment and corporate professionals can no longer treat geopolitics as an exogenous risk
- How to ignore the media and focus on what drives market narratives that generate returns
Perfect for investors, C-suite executives, and investment professionals, Geopolitical Alpha belongs on the shelf of anyone interested in the intersection of geopolitics, economics, and finance.
From the Inside Flap
"Many ask who is a Zbigniew Brzezinski or Henry Kissinger of the young generation? The assumption of that question is that there are few with the education, experience, and background who can offer a global approach to the challenges and opportunities of our time. Brzezinski (my late father) and Kissinger at an early age lived abroad, learned foreign languages, and were raised by parents born elsewhere but cast on America's shores by World War II. That gave them special context, and, combined with their education, they were able to redefine America's role away from conventional state-to-state, balance-of-power approaches to ones more in tune with the challenges of their time. Welcome Marko Papic: Born in Southeastern Europe, and after his early education in Canada, now finds himself thinking through geopolitical risk for investors in America. He has written a remarkable book, Geopolitical Alpha, because he generally sees political risk analysts bungling it in terms of their analysis and strategic planning. This is a 'must read' for those interested in global investing and American leadership."
—Mark Brzezinski, United States Ambassador (retd.)
"Geopolitical Alpha is quite literally a bookend for a new paradigm in global markets. Geopolitics is now as relevant to investors as macroeconomics and central banking were in the last paradigm."
—Alan Howard, Founder, Brevan Howard Asset Management
"Marko Papic proves a shrewd and humorous translator between the world of investing and policy-making in the pursuit of Geopolitical Alpha. For both traders looking to find the next trade or policymakers looking to make better policy, Geopolitical Alpha can help you to better understand how our world works and how to operationalize that understanding."
—Mark Haefele, Chief Investment Officer, UBS
"From his very first chapter, Marko Papic tells us what not to do. 'Niccoló Machiavelli was wrong,' he declares boldly. 'Don't study the Prince. Study his constraints.' Drawing on thinkers as varied as Karl Marx and Richards J. Heuer, the guru of intelligence analysis, Papic proceeds to lay out what he calls his constraint-based framework for generating political alpha."
—Sebastian Mallaby, author, More Money Than God: Hedge Funds and the Making of a New Elite
"A thought-provoking geopolitical tour d'horizon that should be considered when we discuss the future of a world in disorder. Only the best books create vehement applause and protest alike. Marko Papic has laid the groundwork for both reactions. Therefore, read it!"
—Karl-Theodor zu Guttenberg, Chairman, Spitzberg Partners; former German Minister of Defense
"Like Tetlock and Gardner's epic work Superforecasting, Marko Papic's Geopolitical Alpha is an important addition to the field of prediction science. Papic's constraint framework is a new powerful tool for an investor's arsenal."
—Joseph Dowling, CEO, Brown University Endowment
"Marko brings geopolitics to life through a very helpful practical framework presented with key insights and wit."—Stephen Gilmore, Chief Investment Officer, New Zealand Superannuation Fund
"Marko's approach is especially relevant at this juncture. The big shifts he cites are real and highly consequential for institutional investors like us. In fact, gaining the right perspective on them today might mean the difference between future success and failure."
—Ziad Hindo, Chief Investment Officer, Ontario Teachers' Pension Plan
"Marko's style is restless energy in the service of cool, chess-playing logic. He is generous with his knowledge, merciless in drawing conclusions, and outrageously funny in delivery. He attacks the questions that matter most to investors and that experts too often leave shrouded in finely wrought uncertainty. And yet Marko is a superb writer as well as strategist, interspersing his methodological training sessions with vivid anecdotes of a lifelong intellectual journey from a shattered Yugoslavia to the heights of finance. Geopolitical Alpha is now the locus classicus of market-relevant geopolitical analysis."
—Matt Gertken, Chief Strategist, Geopolitical Strategy, BCA Research
From the Back Cover
Not long ago, financial markets danced and central bankers called the tune. Today, investors confront a discordant world transformed by political paradigm shifts. In Geopolitical Alpha, investment strategist Marko Papic shares his framework for making sense of the new macro landscape. By focusing on material constraints, investors can ignore the ephemeral and irrelevant, generating consistent alpha even in the face of extreme uncertainty. Geopolitical Alpha is the guide to the future for anyone interested in geopolitics, economics, and finance.
"Above all else, Marko Papic is an astute strategist who understands that geopolitics is more important than ever for investors, as the world moves from unipolarity to multipolarity. The central message of his fascinating book is simple and compelling: never underestimate the influence of material constraints on policymakers."
—John J. Mearsheimer, R. Wendell Harrison Distinguished Service Professor, University of Chicago; author, The Tragedy of Great Power Politics
"In Geopolitical Alpha, Marko Papic provides a framework for thinking ahead of where we are and anticipating geostrategic events. Moreover, he does so in a prose that is as entertaining as it is informative."
—H.R. McMaster, Lieutenant General (retd.), U.S. Army; Former White House National Security Adviser; author, Battlegrounds: The Fight to Defend the Free World
"Geopolitical Alpha may do for macro-investing what Benjamin Graham's classic, Security Analysis, did for stock picking: provide a tool kit for generating excess returns by focusing on rigorous frameworks and clear-thinking outcomes, rather than breathless narratives driven by the media echo chamber and market whispers. Marko Papic blends a young person's ability for novel problem-solving with a veteran strategist's historical perspectives to create a smart, important work that will take its place on every serious investor's shelf."
—Scott Bessent, Chief Investment Officer, Key Square Group
"Geopolitical Alpha spells out the notion that all preferences are subject to constraints. This book will change how I look at some of my research on investments and make me consider my own biases and preferences."
—Paula Volent, Chief Investment Officer, Bowdoin College
"It is now clear that for the first time in our lifetimes geopolitics will be the biggest driver of markets and long run returns. To succeed in this new world, you need to understand geopolitics, and Marko is one of the best geopolitical strategists I know. If you want the best chance to achieve your return targets, read this book."
—Raphael Arndt, CEO, Future Fund of Australia
"Geopolitical Alpha is a fascinating, entertaining, and highly readable book. Marko Papic offers a distinctive and compelling take on the interplay between geopolitics and financial markets, with a clear intellectual framework to guide macro investment decisions."
—Jeremy C. Stein, Moise Y. Safra Professor of Economics, Harvard University; former member of the Board of Governors, U.S. Federal Reserve
- Publisher : Wiley; 1st edition (October 13, 2020)
- Language : English
- Hardcover : 304 pages
- ISBN-10 : 1119740215
- ISBN-13 : 978-1119740216
- Item Weight : 1.14 pounds
- Dimensions : 6 x 1.1 x 9.2 inches
- Best Sellers Rank: #73,446 in Books (See Top 100 in Books)
- Customer Reviews:
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Author also writes the book in a way where it can be easily used for reference. I read the whole thing once but I don't need 2 remember it all. I can easily find a concept I need clarity on, in seconds.
His methodology is to look for constraints on policymakers, not policymaker preferences. He repeatedly cites: Preferences are optional adn subject to constraints, whereas constraints are neither optional nor subject to preferences. To employ the framework outlined by this mantra takes a lot of work. He argues that geopolitics is not a "nice to have", but rather is essential to much investing. The "alpha" refers to seeking excess returns in investing.
His approach rests on three pillars. The first is a "materialist dialectic". Sounds communist. He cites Karl Marx as preferable to Machiavelli. The author is not a communist, but he seeks reality in constraints and Karl Marx is one of his muses - enjoy the ride. The second pillar is diagnosticity of constraints, which are observable and empirical. But you have to look for them and observe them dispassionately. The third pillar is to avoid sttribution errors by looking at the person in the situation, not just at the person. The person may do things that are contrary to preferences because of fundamental constraints, which override preferences.
He applies this framework to politics, the economy and the market, geopolitics (waves that cross borders), legal constraints (generally weak, but sometimes decisive) and the effect of time on constraints (when preferences can "run out the clock"). He looks at the current COVID pandemic (the book was largely written during the first half of 2020) beginning at page 178 and following. He argues that people will lose their of COVID and society will reopen sooner than some elites would like. In March 2021 as write this, this may be happening now.
In the chapter on The Wizards of Oz he observes that many "experts" who frequent the media are, in fact, not forecasting accurately. He gives examples. Why does he look at this? Because to find and understand constraints, one must look dispassionately at the world and put off ideological blinders (the author "bathes himself in nihilism"). Even very successful investors can be blinded by their political and ideological biases. The book aids in fighting these mental limits. The constraint framework gives an investor a way to look at the world and hopefully find ways to adapt and improve their returns.
I have the hardback. I read it twice. I highly recommend it. Even if you are not an investor, his insights and methodology will aid you as you try to make sense of events in your home country and geopolitically. Read the book.
Of course, investment professionals would still need to use geopolitical research services (a point made clear in the book), but at least now they can "think through" the advice rather than taking advice at the face value.
Also, I love those great anecdotes and the entertaining writing style. Good to bring along for a vacation trip.
How this differs from Sun Tzu, Machiavelli, Clausewitz, and Liddel-Hart, or Locke, Smith, Hume, and Blackstone, or any of the marginalists, Hayekians, Beckerians, and behavioral economists, or any of cognitive scientists, neuroscientists, or any of the artificial intelligence researchers, is beyond me.
In every generation, in every field, someone in that field counters the natural human tendency to confuse the behavior of local individuals under norms, values, and institutions, with the amorality, brutality, and empirical reality that we are always and everywhere at war, and religion, philosophy, politics, and economics are the means by which we redirect warfare to the production of competing commons that increase capital versus outright warfare that destroys it.
We train each other in a society with via-positiva goods, but the purpose of these individual behavioral goods is to conduct sufficient reproductive, cultural, economic, technological, and political warfare to preserve our choice of how to do so, by the production of sovereignty.
But in this comforting illusion we call 'morality' we easily forget that there are those whose duty it is to preserve that sovereignty, and they are NOT bound by morality first, but by material constraints, and that morality is a, convenience not a necessity or utility.
For this reason, educating us from good peasants to responsible adults requires we abandon the via-positiva optimism of our childhood if what we are responsible for is participating in that reproductive, social, economic, technological, political, or military warfare - so that we can accurately predict the behavior of those others who must do the same.
In other words, understand the material incentives that decision-makers are subject to. Because moralizing isn't scarce, but resources are.
I expected a repetition of this message, and what I found in this book wasn't sufficient.
It's not bad. It's just not enough of what we need.
Top reviews from other countries
Where the book fails to realise its full potential is the post-assessment phase: once you think you have ascertained the material constraints on a decision maker's action, what should you do? Each intersection of finance and geopolitics is so nuanced, so unique and so overwhelmed with information that parsing the noise is incredibly difficult without or without his framework, and to make trades or investments based off only one such perspective seems a stretch. Readers are presented with several examples of where Papic 'called' a geopolitical event: say the overestimation of Bolsonaro and Brazil versus Mexico and Lopez Obrador in FX. The proposed trade was long MXN/BRL, which apparently netted 11.2% in just over a year to 2019. Given that the S&P 500 returned over 30% that year, you'd be forgiven for wondering what all your hard work was for. (Comparing currencies to equities isn't quite fair - I'm just illustrating that for the layman or long term investor, this is book isn't particularly relevant)
The trade 'worked', but to make such a decision based off purely geopolitical factors is incredibly risky. The (admittedly abridged) assessment included nothing about the role of each country's central bank, effects of commodity prices on each respective currency, rates of inflation, influence of USD or other currencies, etc. It strikes me that Papic got lucky in that he made the correct geopolitical call while ignoring the other highly complex factors that influence currency moves, fortunate that other non-political events didn't derail his trade over that particular time period. We also hear curiously little about Papic's failures or his proven alpha; as a strategist, surely his firm has the numbers on his value add over and above the market? In other words, does this approach actually have firm quantitative evidence that it works?
Then there is the writing style. Personally, I found the book jarring to read. The majority of the book is well written, but it is interspersed with irrelevant personal tangents and anecdotes, or long footnotes that add nothing or actually detract from the flow of the book.
I would end by saying that this book is probably worth a read if you're interested in geopolitics and markets, but is unlikely to fundamentally change how you invest. It's mainly written with trading in mind, and if you're a long term, long only investor it's probably not wise to try to generate 'alpha' based on this short-medium term framework.
Typically, its a tall order to make actionable & definitive judgements given the nuances involved when politicians &/or central bankers (or 'key opinion leaders') speak due to their spiels often laden with sweeping statements and or contradictory signals, which up until I read this book, often led to one believing the reliance on 'domain experts' was critical; this is especially due to all kinds of behavioural biases of the person interpreting that information.
Geopolitical Alpha provides a framework that forces you to first identify & then separate preferences & material constraints of politicians/policymakers (no PhD or access to "smoke filled private rooms" needed), a process which Marko walks through with several examples step by step, thus helping one to extract insight from information. The process forces you to aggregate and weight information to assess likelihood of that what is being said vs. understanding how feasible it is to implement based on the constraints of the office policymaker occupies. That's why this is one of the most important books ever written alongside works of Michael Pettis, Hyman Minsky & Charles Kindleberger.