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Wealth, War and Wisdom Hardcover – February 4, 2008
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"Barton Biggs has some offbeat advice for the rich: Insure yourself against war and disaster by buying a remote farm or ranch and stocking it with 'seed, fertilizer, canned food, wine, medicine, clothes, etc.'
"The ``etc.'' must mean guns.
"'A few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage,' he writes in his new book, 'Wealth, War and Wisdom.'
"Biggs is no paranoid survivalist. He was chief global strategist at Morgan Stanley before leaving in 2003 to form hedge fund Traxis Partners. He doesn't lock and load until the last page of this smart look at how World War II warped share prices, gutted wealth and remains a warning to investors. His message: Listen to markets, learn from history and prepare for the worst.
"'Wealth, War and Wisdom' fills a void. Library shelves are packed with volumes on World War II. The history of stock markets also has been ably recorded, notably in Robert Sobel's 'The Big Board.' Yet how many books track the intersection of the two?
"The 'wisdom' in the alliterative title refers to the spooky way markets can foreshadow the future. Biggs became fascinated with this phenomenon after discovering by chance that equity markets sensed major turning points in the war.
"The British stock market bottomed out in late June 1940 and started rising again before the truly grim days of the Battle of Britain in July to October, when the Germans were splintering London with bombs and preparing to invade the U.K.
"The Dow Jones Industrial Average plumbed 'an epic bottom' in late April and early May of 1942, then began climbing well before the U.S. victory in the Battle of Midway in June turned the tide against the Japanese.
"Berlin shares 'peaked at the high-water mark of the German attack on Russia just before the advance German patrols actually saw the spires of Moscow in early December of 1941.'
"'Those were the three great momentum changes of World War II -- although at the time, no one except the stock markets recognized them as such.'
"Biggs isn't suggesting that Mr. Market is infallible: He can get 'panicky and crazy in the heat of the moment,' he says. Over the long haul, though, markets display what James Surowiecki calls 'the wisdom of crowds.'
"Like giant voting machines, they aggregate the judgments of individuals acting independently into a collective assessment. Biggs stress-tests this theory against events that shook nations from the Depression through the Korean War, which he calls 'the last battle of World War II.'
"Biggs has read widely and thought deeply. He has a pleasing conversational style, an eye for memorable anecdotes and a weakness for Winston Churchill's quips. His book works as a brisk refresher course.
"What really packs a wallop, though, is his combination of military history, market action, maps and charts. It's one thing to say that the London market scraped bottom before the Battle of Britain. It's another to show it.
"In May and June 1940, some 338,000 British and French troops had been evacuated from Dunkirk by a flotilla of fishing boats, tugs, barges, yachts and river steamers. The French and Belgian armies had collapsed; the Dutch had surrendered. Britain stood alone, as bombs shattered London and the Nazis prepared to invade. Yet stocks rallied.
"Mankind endures 'an episode of great wealth destruction' at least once every century, Biggs reminds us. So the wealthy should prepare to ride out a disaster, be it a tsunami, a market meltdown or Islamic terrorists with a dirty bomb.
"The rich get complacent, assuming they will have time ``to extricate themselves and their wealth'' when trouble comes, Biggs says. The rich are mistaken, as the Holocaust proves.
"'Events move much faster than anyone expects,' he says, 'and the barbarians are on top of you before you can escape.'"--Bloomberg (Jan. 30)
"Traders unnerved by the harrowing news on offer at this particular moment in history should ease their worried minds with an amble through Barton Biggs' stellar new book, Wealth, War, & Wisdom. Biggs...turns his keen economic historian's eye to the last century's sundry wars, conflicts and other catastrophes to examine how they affected the economies of both the principal combatants and the world at large. The moral of his tale, though hardly radical, is impressively detailed and convincingly argued: A strategy for the long term is the best way for traders (and ordinary investors) to build and maintain wealth...[Biggs'] air of scholarly detachment and lucid prose make Wealth, War & Wisdom worthy as both an economic primer and history seminar."-Trader Monthly, February 2008
“air of scholarly detachment and his lucid prose make [the book] worthy as both an economic primer and history seminar.” (Trader Monthly, March 2008)
“...completely relevant, indeed essential, to predicting the way modern financial markets and the economy will act during uncertain times…” (HereIsTheCity.com, Sat 8th March)
“His clear and lively writing style and his deep knowledge of markets and investments will entertain…as well as educate”. (Yahoo Finance, Tuesday 15th April 2008)
"Barton Biggs is a brilliant, legendary and world-renowned wise man of finance. In this original and absorbing book, he combines his vast understanding of the world economy with his deep sense of history to bring us new, important and thought-provoking lessons from the crucible experience of World War II."-- Michael Beschloss
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Having been a practical person I am more interested in staying away from the societal "noise" and/or induced information agenda's and having an objective view of markets away from the madness of crowds and learning from history over a longer period of time, reacting only when necessary.
Barton Barton Biggs' book provides an interesting and somewhat entertaining historical read, about the very personalities of the people and societies involved primarily from the time of world war II to the present day. It focuses on the motivations of people and wartime progress, relative to the market. Although not all data is empirical, it is certainly an interesting read that contains many valuable lessons.
Just what is Biggs background and his credentials as an Investor? As a regular contributor to Morgan and Stanley's "Investment Perspectives" from the 1970's to 1990's and his investing with Fairfield Partners in the 1960's and early 1970's, as well as Traxis Partners in the 2000's. Worth a read based on the time frame alone
Reviewers note: There is no point in panic, just positive and deliberate action for those capable, able and inclined to take it (which I think to varying degrees most of us are capable, the real issue comes down to motivation and timing).
A few interesting points that stuck out as useful in summary:
Although agreeing with the conceptual "madness of crowds" (Nietzsche / Mackay) Biggs says its the "collective JUDGEMENT of crowds and their INTUITIONS that we should be respectful of. (the saying "the Market is always right" comes to mind")
Individuals, on the other hand, such as analysts, have invested of themselves, positions and their egos, so tend to support and justify themselves whereas the market just does its thing and plays out events without taking a particular position or viewpoint - ie. there are simply no facts to justify, only market sentiment.
Biggs states by its French origins an entrepreneur is one who goes about ones business moving resources around to where best returns are to be had.
As one becomes wealthier wealth preservation becomes more important since its easy to become complacent. Many wealthy people tend to become somewhat complacent so being able to look at yourself and your situation objectively was high on the priority list although not implicitly stated.
Having a remote farm in the country you are in, multiple passports and wealth overseas can literally save your life and the life of your family in a wartime or crisis event if society becomes inhumane and rationality ceases to exist amongst the general population.
Biggs suggests about 5% of a persons net worth might be worth considering for farm purposes. Buildings and property can be destroyed but food can be grown easily on fertile farmland.
Biggs quotes Nietzsche "Ignore the past and you will lose an eye. Live in the past and you will lose both of them". He also continues to quote in regards to ones own humanity in times of conflict or dealing with good or evil "Stare too long into the Abyss and you will become the Abyss." Good lessons on both quotes there.
Governments, domestic and foreign are a potential wealth risk to investors.
Although owning real property in the country you live in can be useful, having global stocks is the safest VERY long term route, particularly if such are index funds given as Mr Biggs suggests there is no safe industry which to invest in the long term, given the effect of change and technology on businesses in general.
Offshore exchanges on long term stocks in steady investments was another way to guard against domestic risk and provide international liquidity.
During conflict the potential for stock GAINS was somewhat limited but in terms of PRESERVATION was generally reasonable providing the owner selected the right class of stock or a stable index in the "right" country. Bonds didn't seem to fare to well by way of comparison.
Biggs says "In my considered but not necessarily correct opinion, a family or individual should have 75% of its wealth in equity investments.
Reviewers note - ensure such equity investments are "freehold" in that they cannot be transfered, disposed or liquidated if the agent, broker gets in financial strife or is dishonest, I still have a court case pending against a large US securities dealer for just that. Also ensure that all cash in management is with another institution outside of the investment firm.
Biggs challenges the suggestion that one should "NOT put all their eggs in one basket and watch that basket closely" which flys in the face against Warren Buffet and Charlie Munger. As much as I personally agree with the wisdom in Mr Buffets advice in a civilized US society and for accounting principals in general, I would have to say when it comes to wealth PRESERVATION as opposed to generation Biggs is correct, and he sights an oversight from Mr Buffet himself in regards to Coca Cola.
Reviewers note: By Buffets own admission he attributes much of his success from growing up and conducting business in the US, also having a large and relatively free economy around him when he got started.
When it came to asset classes this was interesting. In terms of items NOT likely to survive a war without misappropriation or damage, Art was listed as a class that was quite limited, as was property (as opposed to land) due to damage and difficulty / damage in transit (in the case of the former).
In terms of protective and liquid asset classes to invest in, Mr Biggs cited a number of instances of which people had been able to STORE, CARRY and use for TRADE during times of conflict jewellery, precious metals, warm clothing. Ie - what do people really NEED to live. Reviewers note: Water and Food get a mention, but in my opinion more could have been said on these subjects but then this could have been a book on its own.
With an Army (non civilian) currency often being in the form of cigarettes, alcohol, women and farms put aside for after the conflict. Some soldiers and countries especially committed atrocities against their own people and ethnicity, both during and after the war.
"The only people who got rich in the war were those connected on one form or another to the black market" where cigarettes and nylon stockings revitalized the market.
Another very interesting point on Page 156 - "The listlessness (of the wars effect on people) affected real estate. A New York hotel could not be sold at one times its annual earnings, and rents in Wall Street office buildings were as low as a dollar a square foot." "Remember that these declines were occuring at a time when war production was surging, huge budget deficits were occurring, and corporate profits were strong".
Another point Biggs made which was interesting in terms of a "black swan" event as he elaborates in his book on page 308 "Perhaps brains or a skill are the most portable and best wealth preserver" after citing the reversal of fortune and subsequent regain of such from the ancestors of an aristocrat who was originally affected by the war.
Not having a showy display of ones means of life was important as wealth "perception" would appear to be everything. People who lived in Manors or large and showy houses tended to be the worst affected the the first to be misappropriated. Living a life based on self sufficiency and hard work would appear to have its merits even in this day and age.
Learning of a lawyer who had faithfully invested each week only to be able to buy a loaf of bread many years later when hyperinflation came into effect was, relative to both his means and that of all humans, of interest.
Other interesting things contained in the book were in the form of an overview of the stock market in terms of its reactions to various wartime events in multiple countries, as well as the fact that the market actually shut down for a number of years in a few countries.
Overall avoiding complacency and learning from history before it is too late are key themes in the book, with some practical conceptual advice to build your own financial risk management plan. He cautions "If you are wealthy remember nothing lasts forever". Reviewers note: I would supplement that with some advice from my now deceased Grandmother "you can't take it with you when you go".
Having somewhere of the beaten track to farm and live if necessary is your greatest protection, as wealth is only useful to its owner whilst he or she is alive, and their is no guarantee that ones offspring will do well with the funds as the wealth could easily be misappropriated from them. So your life and ability would be your greatest assets, and that to me would indicate knowing at least a few practical survival and agricultural and construction skills are worthwhile endeavors.
Biggs comments: "some day in the future barbarians in one disguise or another will be at the gates". "By definition, the next "Black Swan" will be some form of a total breakdown of civilized society and the social and financial infrastructure as we know it" however to counter this suggests that black swan events are also unexpected in frequency and nature.
Advice is given that "if you are part of a prosperous minority in a country, particularly a religious minority, you should always be looking over your shoulder." The reason given for this is that "your abundance, your affluence inevitably is attracting envy and envy leads to hatred."
In closing the review, on pages 316, 317, 323, 332 and 333 Biggs provides his most practical advices, but without stealing his thunder I'll let you read the book.
To support his thesis, Mr. Biggs works his way through World War II, showing how the stock markets of various countries anticipated the result of the war even when the outcome wasn't evident from the immediate circumstances. For instance, England's stock market turned up at the height of the bombings on London, America's stock market turned from crash to boom just at the Battle of Midway, and Germany's stock market went from boom to bust just at the height of Germany's success --when the German army first caught sight of the spires of Moscow.
The author's thesis makes sense, and explains a host of interesting realities. The fall of states that control information tightly, for instance, can be attributed, at least in part, to the mobs that form when they are allowed only to have one source of information. The sad state of many academic circles, as well, where a relatively small group of people participate in a increasingly smaller circle of ideas, ignoring those who don't have the background or training to "understand." This is particularly prevalent in our modern day expert driven world.
The problems in this book like in Mr. Biggs casual acceptance of the "common narrative," of history, and in his assumption that the markets always represent the types of crowds he proposes. There are many times, such as the present, when the markets appear to be controlled by a relatively small group of "experts," such as traders and "financial gurus." In these cases, the predictive power of any given market will necessarily be suspect --but it's always hard to tell precisely when a specific market is controlled by a broad base of independent actors, and when it's controlled by a small group of experts.
His acceptance of the "popular historical narrative," is also problematic. Roosevelt did not end the Great Depression, for instance, although this is an underlying assumption throughout the book. Roosevelt, if anything, worsened the Great Depression.
Overall, however, this book has a solid thesis. If you can skip over the problems in the supports, it's worth reading.