Barton Biggs, the well-known former Morgan Stanley strategist, asks an interesting question at the beginning of his new book, Wealth, War & Wisdom: “How do you preserve wealth in times when the Four Horsemen are on the loose?” (By Four Horsemen, Biggs refers to “pestilence, war, famine and death.” See also Revelation 6:8.) Indeed answering this question was his motivation for writing the book. As an amateur historian, WWII buff and investor, he wondered: What’s the point of making money if you cannot preserve it? His book shows how, uncannily, “The equity markets in the principal contenders [in WWII] — the United States, Britain, Germany and Japan — identified the monumental, epic turning points in the war with uncanny perception,” even as individual experts or lay observers did not. Biggs notes that the U.S. market “turned forever” around the Battle of Midway in late May of 1943; that the British stock market bottomed — get this — just before the Battle of Britain in 1940; the German market reached its high-water mark as Hitler’s army attacked Russia (which marked the German war machine’s first big key losses) in December 1941; and Japan’s market peaked in 1942 — despite the tightly controlled pro-war propaganda published by the Empire’s media.
But what are the takeaway lessons? For protecting wealth, stocks are a better bet than bonds (real property only gets confiscated). While gold and jewelry can raise a little “mad money,” as Biggs says, they are still “problematic.” Over the long run, equities are the place to be — even in countries that are losing a war, because historically, even they have managed to beat inflation. Biggs’ advice: Index, and ignore just about everything else. Here is an excerpt from Wealth, War & Wisdom.
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