As I explain to my students at IE, the most any business school can hope to do is move you from unconscious ignorance to conscious ignorance of a subject. In other words, a course can lay a firm foundation in a subject, and then provide a jumping off point for future self-study. After my MIAF course “Geopolitics and Investing”, that usually prompts the question, “Where should I begin such self-study?” How do I start to learn to generate “geopolitical alpha”?
As I said in an earlier post, there are certain key books that point you towards how to think like an intelligence analyst. Because the skills of an intelligence analyst and a geopolitical investor overlap so much, I would also say that investors interested in geopolitics start with those key books. In particular, if you haven’t mastered the critical thinking and the basic analytic techniques described in Thinking in Time, Essence of Decision and The Thinker’s Toolkit, you are still in kindergarten as far as intelligence analysis is concerned. Heuer’s Psychology of Intelligence Analysis (downloadable free from the CIA’s site here) is also immensely valuable. None of these books will teach you geopolitical analysis per se, but they will give you a solid foundation in non-quantitative analysis.
Some former MIAF students have now come to me and said “OK, we have done those: where next?” This post is at least a partial answer to their question.
In my view, the first port of call for investors who already have this foundation is to practice the techniques and ideas they describe while reviewing investing books that touch on geopolitical themes. In other words, cast a skeptical eye over books such as The Education of a Speculator, Practical Speculation, and Trade Like a Hedge Fund. See how often the fallacies and biases explored in Heuer’s work might have bearing on some of the techniques these books suggest, or ask how Allison’s frameworks would provide depth and nuance to standard investing approaches.
Next, move on to specifically “geopolitical investing” books like If It’s Raining in Brazil, Buy Starbucks, World Event Trading, The Rise of the State and Trading Catalysts. Frankly, if you’ve done your homework up to this point, you’ll be a bit disappointed with these volumes. They offer some interesting anecdotes, but a sound knowledge of intelligence analysis will have inoculated you pretty thoroughly against their relatively naive “follow the news” methodologies. Successful investors discount the obvious, and if you’ve come this far, you’ll whip through these volumes pretty fast. On the positive side, you might later use these books to think through event cascades or as a source of productive historical analogies.
Of more abiding interest are two types of books. The first type is intended to further refine your thinking and intelligence analysis skills. In this category I would include Taleb’s best book (no, it’s not The Black Swan), and Structured Analytic Techniques for Intelligence Analysis. The latter volume can be supplemented with the companion book of cases, though be aware that the cases have absolutely nothing to do with investing.
If you’re interested in gaining a strong command of the basics of the economics of commodities generally (as opposed to commodity investing itself), A Handbook of Primary Commodities in the Global Economy is an outstanding place to begin. This same volume is excellent on understanding the geopolitics of agricultural commodities and food (and is a balanced corrective to neo-Malthusian scare-mongering like Full Planet, Empty Plates: the New Geopolitics of Food Scarcity). The basic argument against these types of fears is also somewhat breathlessly presented in Abundance: The Future is Better Than You Think.
The second type of book I recommend for advanced readers interested in geopolitics and investing are broader works. Here, you might start with War, Wealth and Wisdom, and George Magnus’s two recent volumes Uprising and The Age of Aging. You might then move on to deeper historical perspectives on the rise and fall of world powers. In this category, Mokyr’s The Lever of Riches in unmatched, and The World Island, Great Powers and Geopolitical Change and Geopolitics and the Great Powers in the Twenty-First Century will round out your perspective.
Many will chide me for not recommending Kennedy’s The Rise and Fall of the World’s Great Powers; I find his data useful and his anecdotes interesting, but his methodology is deeply flawed and his prediction of US decline starting in the early 1990s is risible. On the other hand, for those who like to consider what a “re-balanced” world might look like, Simon Serfaty has just published A World Recast: An American Moment in a Post-Western Order.
I don’t want to leave you with the impression that I believe the West is doomed, however. In many ways, China is a self-limiting problem, as Edward Luttwak, says in a new book on China, The Rise of China vs. the Logic of Strategy. In the same volume, Luttwak offers compelling examples of China’s “strategic autism” – its greatly diminished strategic situational awareness regarding its own actions. If you really want to pursue China in depth, see also China’s Trapped Transition: The Limits of Developmental Autocracy, The Party, China: Fragile Superpower, and the now-somewhat dated but still useful The China Dream.
All of these lists could be much longer (and I may do future posts rounding out other geopolitical themes) but this list should give most people plenty of fuel for thinking, and generate a lot of interesting questions about your investing and the assumptions underlying it. Suggestions welcome!
PS If you enjoyed this post, why not subscribe to our blog? Thanks.