I’ve started to read Wealth, War and Wisdom
, a book that supposedly answers the question of what investments are best-suited to preserving value despite large-scale catastrophes. The author, Barton Biggs, is a former Morgan Stanley executive who now manages a $1 billion hedge fund. He’s also a World War II buff, apparently, and tries to correlate stock market performance with events that, in retrospect, were turning points in the war. Biggs claims that investors were much better at predicting the future of the war than were politicians, journalists, and military experts. So far it is not fully convincing but it is a unique look at World War II history in which battles are significant primarily for their effect on world markets!
Skimming ahead, I’m not sure how practical the book will prove to be as an investment guide. In Japan stocks and urban land proved to be good investments for investors who bought prior to the destruction of World War II. Farm land, on the other hand, did not do well. In France, by contrast, land and gold came through the war much better than stocks. In nearly every country afflicted by war, stocks outperformed bonds for the periods 1900-1949 and 1940-1949. One caveat that Biggs offers is that you can’t buy and hold individual stocks, since once-promising companies inevitably decay (computer nerds get branded as dullards by Biggs: “IBM and Intel were once great innovating companies, but now they are corporate research laboratories. Bill Gates was the innovator, not Microsoft”). How does Biggs, a professional money manager collecting fat fees, recommend to his readers that they maintain a diversified equities portfolio? Through low-cost index funds: “It pains me to write it, but professional investors don’t do much better [than individual investors picking stocks and underperforming the S&P] on a statistically significant, risk-adjusted basis.”
Biggs’s strongest recommendation is to avoid being Jewish, especially in Europe: “German Jews, brilliant cultured, and cosmopolitan as they were, were too complacent. They had been in Germany so long and were so well established, they simply couldn’t believe that there was going to be a program that would endanger them. … As a result the German Jews had relatively little wealth outside of Germany, and reacted sluggishly to the rise of Hitler…”. Other regions of the world get some coverage as well: “In Iraq the wealthy Iraqi Jews who had lived there for centuries misjudged how fast and ruthlessly Saddam Hussein … would move to expropriate their wealth. … The same calamity befell the Indonesian Chinese who failed to anticipate the rapidity of the fall of Sukarno. … No matter how safe and secure your home country appears, even if it’s the United States, every truly wealthy person should have some assets elsewhere. History suggests that nothing is forever. … New Zealand recently has become the Shangri-la of choice for paranoid American hedge-fund grand masters. Currently wealthy Russians are paying up for residential properties in London, New York, and the south of France.”
Given the fact that the U.S. has not experienced a war on its soil since 1865 and that he is writing mostly for an American audience, Biggs seems a little obsessed with war. On the other hand, being invaded and conquered has been the most dramatic cause of wealth destruction throughout human history. And the U.S. has been at war for much of the past 70 years (see http://en.wikipedia.org/wiki/Military_history_of_the_United_States for the full list). Who is to say that if we keep starting wars we won’t eventually lose one badly enough to find the enemy here in Boston?
[One thing that we can’t fault Biggs for is timing the market for readers of books about surviving financial crises. According to the Amazon reader reviews, the hardcover hit the streets in January 2008, just one month after the U.S. economy entered the Great Recession, and came out in paperback in October 2009, just a few months after the recession officially ended (July 2009).]
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