Every investment ideology… sorry, method… has its guru. And a determined gang of acolytes which follow it. It’s deeply unwise to take cheap shots at any of them. So, here goes…
The greatest value investor is Warren Buffett. He searches for companies that are priced on the stock market for less than they’re really worth, and buys them. Unfortunately, this has developed into a habit of buying up businesses experiencing some sort of unethical scandal…
Momentum investors follow the trend rules established by the Turtle Trader experiment led by Richard Dennis. If you believe in the Turtle Trader philosophy, anyone can become a hugely successful trader. Which is why very few people do…?
During the recent tech bubble, it was the sharp ascent of Cathie Wood’s ARK fund which everyone obsessed over. But that has come down to earth over the last year. At least it didn’t require a government rescue though…
Arbitrage traders followed the academics and their theories at Long-Term Capital Management, a hedge fund that did not live up to the first two words in its name. Founded in 1993 by renowned Salomon Brothers bond trader John Merewether and Nobel Prize-winning economists, it collapsed in 1998. The US government, fearing that the fall of LTCM would lead to a systemic crisis, bailed out the hedge fund. LTCM was liquidated in an orderly fashion in early 2000.
Bill Gross presided over a legendary run in bonds and became known as the Bond King. But lately, bonds have had their worst returns in about 150 years… Bonds went from “risk free return” to “return free risk”…
George Soros loves to go after the hubris of governments and central bankers who think they’re stronger than financial markets. He broke many more than the Bank of England. Well, he used to. These days he funds such hubristic people with political donations…
My point is this: each investment methodology has its day and its superstar… for a while. Following a particular methodology or person is not necessarily a good idea. You have to pick the right one at the right moment.
If you do, following their disciplined approach and methodology can, of course, be a good idea. But the timing still matters.
Oh, you want to hear which crowd I belong to? I’m in the macro group – those who can’t see the trees for the forest. We predicted inflation and invested in assets that usually do well during inflation… although they haven’t done so yet..
But back to the real question: which investors are masters of our present situation?
Which famous investors and investment philosophies triumphed over geopolitical chaos, an energy crisis, too much debt, inflation, and a pandemic, all at the same time?
That’s easy. Let me introduce you to Hugo Stinnes…
Just as Bill Gross was known as the Bond King, Hugo Stinnes was known as the Inflationskönig – the inflation king. Time magazine even called him “The New Emperor of Germany”.
Stinnes faced hyperinflation, an energy crisis, World War I, Germany’s impossible debt levels and of course the Spanish Flu pandemic. Basically, everything we face today, just an order of magnitude worse for each one.
Stinnes was born in Mülheim, into a wealthy family which owned a coal mine and other businesses. My ancestors likely worked for him as coal miners and I was born in the neighbouring town (of which more in due course).
Understanding what was to come of the Weimar monetary policies, Stinnes borrowed heavily in Papiermark – literally the “paper money” of Germany at the time. And he used the proceeds to buy up mines and other capital-intensive real assets like shipping, forests and steelworks.
Notice there were largely tangible assets – real stuff, paid for by printable money.
Stinnes’ business empire rapidly expanded under the load of debt. In fact, he even became a banker just to leverage up his own businesses even more. He became Germany’s largest employer in the process – about 1% of the entire German population worked for him. And he was a key figure of the political scene too (in a really, really bad way). But it was all a big gamble on what would happen next.
As inflation exploded under Weimar policies, Stinnes’ debts became easy to pay off. That’s because those debts were denominated in money, but money became worth less and eventually worthless. The value and output of his real and productive assets meanwhile soared in price during the inflation, making it easy to repay the fixed debt with vast cashflow.
Stinnes also used dirty tricks to dispossess foreigners, a bit like Germany’s government is doing today to Gazprom…
All this happened about 100 years ago. Although, it’s beginning to happen again, even if the problems are far less dramatic this time around.
Am I suggesting you borrow a few billion paper-pounds and wait for the value of money to crash as central banks print up the money needed for governments to pay off impossible debts?
No, although a fixed-rate mortgage might be a good idea at the moment.
Instead, consider what Stinnes invested in… real stuff, and the dirtier the better. That’s because, in a world where money becomes an abstraction that can be controlled by increasingly desperate governments and central banks, it pays to avoid such monetary traps. All assets that rely on the value of money become reliant on money retaining its value. And you can’t rely on that any more.
Instead, focus on what has value independently from money. Things that you can use. That way, not matter what happens in the monetary arena, your wealth will remain in-tact.
Here’s the most important thing to keep in mind as our stagflation worsens on both ends – inflation and recession. Times like this are not just about wealth destruction, they’re about wealth redistribution. There are winners as well as losers.
You can choose which group to belong to, to some extent.
That is why my old friend Shae Russell has decided to join our publishing firm to try and help people get on the right side of history. She’s done so before – during Australia’s resources boom which was driven by China. But, this time, it’s out of desperation.
Nick Hubble
Editor, Fortune & Freedom
