“I Hope I’m Making a Bad Buy”

Yesterday was a lesson from Barton Biggs on how important it is to “listen to the market crowd.”

Today, we continue learning from his book, Wealth, War & Wisdom. As a reminder, it’s about what happened to stock markets and wealth during World War II.

Biggs calls WW2 “the most excruciating, destructive global disaster in all history.” No one knows if something similar will ever happen again.

The chances are that it will, whether that’s a decade or two hundred years from now.

The goal at The Champion Investor is to build and preserve wealth for generations. Our timeline is forever. It’s easy to think like that when you focus on family wealth.

Learning from history is a big part of building the skills and knowledge to do it.

We’ll take a different turn today in the last piece of our two-part series. The focus is on preserving wealth and if there’s a such thing as “keeper stocks.” (Also known as the kind of stocks you can buy and hold forever.)

Let’s begin…

Preserving Wealth

Biggs said, “If you’re wealthy, just remember nothing is forever. Get some serious capital out of the country. Having money outside of your country was a life-saving act if you were a European or Asian citizen of a Loser country during WW2.”

There’s a lot packed into that quote.

First, I know it’s not easy to just pack up and start scouting out foreign real estate to buy or foreign banks to open a savings account with.

It takes money and time. Most of which few people have… Family, kids, school, work, and plain old life tends to take much of it away.

For someone that does have the time… one of the best ways to get capital outside of your home country is buying foreign real estate.

If your family takes an annual foreign vacation to your favorite Caribbean island or country in Europe, you could start by looking there. Because if you ever consider buying foreign real estate, it’s best to buy in a place you enjoy spending time at and know well.

If you can’t buy foreign real estate, then you could open a second bank account there. Of course, you’d need to check with a local bank and your tax accountant or advisor for the rules and regulations.

Another option is buying gold or even diversifying into foreign currencies. There are vault companies around the world where you can store valuables.

There are also services out there where you can buy and store gold in a transaction that’s all online. You can buy the gold and they store it in their secure vaults somewhere around the world.

Regardless, the idea is to transfer some money (legally, of course) to a safe-haven for “catastrophe insurance.” (Again, check with your attorney, accountant, or tax advisor so you know the rules, regulations, and reporting requirements for doing it.)

Biggs makes an interesting point about this idea… He said the rich don’t care if they pay inflated prices to protect life, liberty, and property.

Think about that for a minute… It makes sense. Sure, it’s easier if you’re rich.

But it’s a good mindset for anyone to have that wants “catastrophe insurance.”

He goes on to quote a Russian oligarch talking about buying real estate outside of Russia… The oligarch said, “I hope I’m making a bad buy.”

If you can’t transfer money outside of the country, there’s another option… One that is way more practical for most of us.

He talked about how some French families fled their homes in Paris in 1940. They gathered up their valuables and took off to their family farms, deep in the countryside, and “far off the beaten track where they survived the war in deprived but reasonably comfortable circumstances.”

In other words, these families had some land out in a rural area. A place far from the major cities and centers of commerce. Maybe it was their weekend getaway or a place to hunt.

Either way, during WW2, it became a place they could lay low. The farm houses didn’t look like mansions and the fields weren’t plush with a ton of planted crops.

Because the more attractive and flashy it was, the more likely the enemy would destroy or confiscate it.

This strategy was successful in Belgium, Holland, Denmark, and to a lesser extent in Eastern Europe. (He said it was extremely difficult to preserve wealth and avoid the destruction there.)

Another key part of survival was avoiding being a part of the resistance efforts. This is in keeping with the idea of laying low. These people just decided to go about their daily life the best they could with what they had and rode out the storm.

Biggs made one last point… It’s the most important one too.

He said, “perhaps brains or a skill are the most portable and best wealth preserver.”

Think about it… If you ever had to start over, your skills and knowledge are the foundation to do so. If you have them, chances are you’ll get back to where you were, or even put yourself in a better situation.

You could hoard gold. You could make a fortune investing or running a business. But at any point in time the government, a world war disaster, theft, or fraud could wipe out all of it.

The only thing that those things can’t take away from you is your attitude, skills, and knowledge. So, acquire the skills and knowledge that allow you to offer goods and services that are demand. You’ll always have what it takes to acquire money.

No matter where you are in the world.

“Keeper Stocks” Don’t Exist

Biggs said, “There is no such thing as a stock that you can buy and put away forever.”

That’s quite different than Warren Buffett’s mantra of buy and hold forever. But like the idea of listening to the market crowd, it requires a deeper look.

Something that Buffett has talked about…

Some company’s competitive advantages last longer than others. We live in a rapidly changing world.

The rate of change is incredibly fast because of technological advancement now.

Fortunately, we haven’t had a major world war in the 21st century. But another world war could accelerate this rate of change even more.

Biggs said that wars are “gales of creative destruction and in the aftermath lead to accelerated technological progress.”

This is important to understand… Because businesses evolve. They grow. Entrepreneurs see that growth and then start new businesses to compete.

Which means competition increases. Which erodes profit.

Then those original businesses grow slower and become less nimble. Many eventually die.

The natural stages of business evolution mean that larger, mature companies don’t innovate…

Entrepreneurs innovate.

Large behemoth companies become corporate research laboratories. Biggs says, “Bill Gates was the innovator, not Microsoft.”

Lastly, he noted, out of the original Forbes list of the 100 largest companies in 1917, by 1987, 61 of the companies no longer existed. 21 were still in business but not on the list.

It’s evidence that nothing lasts forever. There are no such things as “keeper stocks.”

Investors need to stay up to date and understand the industry trends in the stocks they own. You don’t want to buy a company and then look at your account ten years from now to find out it went bankrupt.

If you don’t have the time, then find a good financial advisor or subscribe to a good investment newsletter to help you stay on top of the trends.

I hope you’ve enjoyed the wisdom of Barton Biggs the past couple of days.

This two-part series has covered a lot of ground…

In summary, we talked about “listening to the market crowd”, how to preserve wealth in times of chaos, and that there are no such things as “keeper stocks.”

The best part is that these concepts are just as valuable today as they were during WW2.