The Fat Tail: The Power of Political Knowledge for Strategic Investing

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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.

Ian Bremmer

Editorial Reviews

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.)

Product Details

ISBN-13: 9780195328554
Publisher: Oxford University Press, USA
Publication date: 2/13/2009
Pages: 272
Sales rank: 1,171,640
Product dimensions: 6.30 (w) x 9.30 (h) x 1.00 (d)

Meet the Author

Ian Bremmer is the President of Eurasia Group and author of The J Curve: A New Way to Understand Why Nations Rise and Fall. He is a contributing editor for Foreign Policy and The National Interest.

Preston Keat is Director of Research at Eurasia Group. He presently teaches at Columbia University's School of International and Public Affairs. For more information, please visit www.fattailbook.com.

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RolfDobelli

Posted May 27, 2009

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Groundbreaking exploration of political risk

This timely, concise book provides an introduction to managing and assessing international political risk. Ian Bremmer and Preston Keat downplay the jargon and specialists' terminology, so their book is easily accessible. However, the authors do presume that readers have at least a nodding acquaintance with the facts of international business life. Many recent risk management books focus more on managing market risks. Political risk, while less quantifiable, still presents a challenge and demands effective administrative attention. This book is a valuable addition to the literature on risk management. Its great merit, getAbstract reports, is that it provides a framework for understanding the nature of political risk and a variety of approaches to managing it.
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nycbrian

Posted February 25, 2009

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An Excellent Primer

What happens to a business whose product is misused by their home nation's geopolitical rival? This issue is tackled with the nuance and the necessary context to illustrate the importance that political risk plays in volatile markets. Without taking the time to invest in the proper insurance, the investors in Ingersoll Rand would have been left to incur much more significant damage then they ultimately had to. (2009, 56)

Anyone who reads Bremmer's blog on ForeignPolicy.com (http://eurasia.foreignpolicy.com/ ) realizes that even the most mundane political occurrences have effects that ripple across markets. Bremmer's J-Curve (also recommended) detailed how different societies go through democratization and how these transformations and the differences in regimes represent different levels of stability. I was excited to see he produced a book more focused on the economic ramifications of political unpredictability. My bias for Geopolitics is coming through b/c another example comes from his excellent chapter on the subject in regards to the "Iran Premium." (2009, 59) After it became clear Iran was stalling for a time and the evasive language President Bush used to not withdraw the right to use military force it seemed like a diplomatic problem was going to transform into an armed one. Of course the Strait of Hormuz only magnified the problem that a second OPEC nation might become involved in a military conflict with the United States. This anecdote shows the importance that political risk and instability plays in global markets and how understanding these nuances can assist investing. As is detailed later on in the book even if one knows when a détente is reached using that information profitably is another matter, but without the first part of that equation the second is compounded even more.

His summary of the main schools of IR is excellent, coming from a former student who has had to expand on them in seemingly every IR course he took. For anyone interested in his discussion about the Great Game here's the link to his Davos event: http://gaia.world-television.com/wef/worldeconomicforum_annualmeeting2009/default.aspx?sn=7003?=en. Also, I would suggest a book Bremmer edited with Ray Taras, "Nations and Politics in the Soviet Successor States."

One characteristic of good books (at least in IR, not so much in fiction) is copious citations from respected journals and other literature in the field. At 42 pages the Notes section includes journals such as International Organization, Financial History Review, International Security, and Niall Ferguson's seminal history about the Rothschild Banking House. (His "Ascent of Money," "Pity of War," and "Empire," are also all excellent) Heavy use of Taleb's "The Black Swan" has prompted me to purchase that book, as well. My only complaint is that the endnotes weren't footnotes, but no one else seems to care about this but me. (Long live Chicago Style!) Good thing Border's gives out two receipts with every purchase!

Another reviewer suggested that the book posited a defense of the Bush Doctrine (so famously summarized by Sarah Palin). Hardly. The book offers two examples of preemption, one of which was successful, Israel in 1967, and one of which is more ambivalent, US involvement in Iraq. These occurrences show that quick judgments of political activities are often vacuous and can lead to disastrous results for investors.
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Ian Bremmer

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Groundbreaking exploration of political risk

An Excellent Primer