I would like to announce that going forward, I plan to regularise my posts from a monthly to a two-monthly cycle. There are a number of reasons for this shift, the first that I struggle to find the time to write blog posts but more importantly, having covered so many topics over the last 5 years in great detail, I struggle to find the material to publish a post every 4 weeks or so.
Now that we have got that out of the way, I plan to discuss one of the most recent books I have read. Barton Biggs Wealth, War and Wisdom.
The book is quite simply a tour de force, going through the performance in real terms of equities, bonds and real assets like land, property and gold over the last century. The author focuses on select countries, including the United States, the United Kingdom, France, Germany and Japan but touches on other places during the fascinating journey.
I found his writings on what happened to the German wealthy particularly fascinating. The Germans had a traumatic century, with hyperinflation, depression, Nazi rule and war, followed by a brutal post-war era and Communist expropriation and occupation of the east. Those wealthy Germans that physically survived the Nazi era and the 2nd world war that slaughtered millions also had to navigate the destruction of German government bonds, Communist seizure of real assets in the East and the collapse of the German stock market in real terms.
Even in the Allied countries that won the war, wealthy people in the UK and the US faced challenging times preserving wealth in an often politically toxic environment. Some of you may wonder why a book about the fortunes of the wealthy from decades ago would be relevant now.
I would argue that this book should be made compulsory for any wealthy family who wish to preserve and pass on their family wealth to future generations. It covers geopolitical risk, the huge threat posed by inflation and why it is critical to diversify your wealth internationally and into different asset classes.
The long era of globalisation that has so enriched the upper echelons of society across the developed world has now ended. We are in a new era of border controls, trade barriers and the shift back to domestic supply chains and manufacturing hubs. Government interventionism is back in vogue and we are not going back to 2019 again.
So the key lessons for me from reading the book are as follows:
Government (and to a lesser extent corporate) bonds are poor asset classes for preserving wealth in the long-term. Inflation usually destroys the real value of capital invested in bonds and we are probably in the early stages of a new inflationary cycle that will ruin a generation of bond investors again.
Equities are generally better stores of value, long-term, than bonds and should be a core part of anybody with a long-term investment horizon. During particularly dark times, the equities often collapse in value or become largely illiquid, if not closed like the Nazi regime did after Stalingrad. So, whilst equities, long-term do prove a better store of value, don’t rely on them when you need food to eat or energy to keep the lights on.
Hard assets, particularly properties, land and rare assets like fine wine, antiques and even art (Old Masters) can be valuable assets to hold. However, they are often illiquid, difficult to sell and prey to destruction, theft or government seizure. The best approach is to diversity, globally, your ownership of these types of assets to mitigate those risks and try and hold them in secure places.
Gold, particularly where it is stored in neutral places like Switzerland, proved lifesavers for some of the individuals mentioned in the book (including a very rich French Jew who escaped death thanks to wealth held in Switzerland). One of the lesser known aspects of WW2, which I didn’t know until I read the book, was that black (i.e. illegal) marketeers were one of the few financial winners from the whole grim period (assuming they didn’t get executed).
These entrepreneurial individuals risked life supplying highly demanded rationed goods on the black market during the war and the post-war years. Many got fabulously rich by the end of the war across occupied Europe and Asia, and converted their wealth into gold, primarily, and waited out the initial post-war years. Biggs notes that many of the successful industrialists who acquired and developed businesses from the 1950’s in places like France, Italy and Germany derived their capital from their black marketeering during the war.
The darkest chapters in the book talk about the plight of European Jewry. Whilst not documented in this book, I am aware that some super-rich German Jews fled Germany prior to Adolf Hitler getting into power in 1933. They sensed the danger and decided, sensibly, that the best thing to do was sell their assets and leave Germany when they could freely do so.
Biggs book covers those wealthy Germany Jews that decided to stick it out and stay in Nazi Germany. Some convinced themselves that the anti-Semitism was just political talk and that things would return to normal over time. Others were too wedded to Germany and the idea of leaving their homeland was unthinkable.
Unfortunately for those wealthy German Jews that stayed, the wealth consequences alone were horrendous. The Nazi regime imposed an exit tax on Jews which in practise meant that by the time a family sold their wealth at discounted prices, paid the exit tax and managed to leave the Third Reich, they often preserved only a fraction of their original family wealth.
And those that did manage to escape were lucky. After 1939, that prospect ended and tragically death awaited those still stuck in Germany and in occupied Europe. The lesson from it all is be prepared to move to safer jurisdictions if required and follow politics closely.
My FI blog was set-up, in part, because I wanted to explore the likely future geopolitical environment and how individuals, whether wealthy or not, can navigate it in the years to come.
This book is a timely reminder of just how challenging that may be for some of us in the future.