It is a long weekend here in London but the weather–as usual–is refusing to make any concessions to barbecue cooks or day trippers. Chilly conditions and gusty winds do however make ideal conditions for reading from the comfort of one’s armchair and so that is largely what I have been doing.
Safes (and Howard Ruff)
Merryn Someset Webb’s column in this weekend’s FT makes the point that hindsight can make fools of even the most clever people. She uses a certain Howard J. Ruff, author of How to Prosper During the Coming Bad Years: A Crash Course in Personal and Financial Survival (1979), to illustrate her point. Ruff, who seems to have been something of a financial guru back in the day, boldly recommended a series of steps for his readers to take to protect and grow their wealth in the coming years. His recommended asset allocation included:
- Investing in food storage
- Silver coins
- Concealed cash
- Speculative assets (gold shares)
- Diamonds, stamps, land etc.
Ruff, of course, wasn’t to know that he was writing on the eve of an era of disinflation, falling interest rates, steady growth, and prosperity but it does rather go to show the danger of making bold (and loud) predictions.
MSW goes on to ponder where we are in the economic cycle today and seems to have some sympathy with the legions of economists fretting about deflation–everyone knows the arguments: demographics, deleveraging, oversupply etc. All of this, coupled with various global bouts of QE, has apparently led to the phenomenon of Swiss companies installing and filling safes, rather than accepting negative deposit rates.
Should we–the ordinary Joes (no offence to anyone intended)–do likewise? MSW almost goes so far as to suggest that we should, even mentioning a website that sells safes that hold £100,000 (www.thesafeshop.co.uk) for £4,000. She makes the point that, after a few years, we will have “at worst” £100,000 and at best a £100,000 that is worth rather more, if deflation has done its thing. MSW sees a “very strong chance” of the dreaded deflationary scenario unfolding and so declares herself a cash hoarder but one who, having learned from Ruff, remains on guard for a change of economic conditions.
Safety (inflation or deflation?)
At this point I put down my newspaper and wondered whether I had just read what I thought I had. Was an FT columnist seriously advocating that we buy a physical safe in which to hoard our cash? Here are my issues with this:
- The physical safe that stores £100,000 costs £4,000 and so you are already -4%.
- Where do you put the safe? Under your bed or in your garage? Behind a false bookcase? What comes next; buying a shotgun to guard it with? How can you sleep easily knowing that a burgler (I live in South London) could break in and relieve you of your life savings?
- The “At worst, you will still have £100,000 in a few years” argument is simply too simplistic; even a minor dose of inflation will decimate cash and face value is cold comfort if this happens.
- Would I back myself to masterfully diagnose a future change in economic conditions to know when to decisively step back into the markets and start investing again? No chance!
So having dismissed the possibility of shelling out to buy a safe, I read the article on the facing page. This was a piece by John Lee in which he described how some investments he had made on behalf of his children had–over the decades–progressed into nest eggs sufficient to provide them with a degree of financial independence in adulthood. He didn’t need to identify any nascent Berkshire Hathaways to do this; just a collection of manufacturers, property companies, soft drink, and soap producers.
Given the choice between showing a little faith in the world by buying part-ownership stakes in a few well-run businesses and sitting guarding cash in a concealed safe, I will always pick the former. I am far from certain that I am doing the right thing and am all too cogniscant of how the future is inherently unknowable, but hoarding cash? Not for me. I will side with John Lee on this one.
Plunging (Jesse Livermore)
Another article also got me thinking; this time it was in the Investors Chronicle (incidentally, the lack of apostrophe in this title is an outrageous cop-out). “The Trader”, a consistently well-written column on a subject of purely academic interest to me, cited the “talented” Jesse Livermore–the boy plunger–as somebody we have apparently come to revere.
Livermore was a man who over his lifetime made and lost several fortunes. He did this by both going long and shorting, but shorting seems to have been his main strength and he finished the 1929 crash worth a sum equivalent to over a billion dollars in today’s money. Unfortunately he lost this sum by going long too quickly and was wiped out, not for the first time. Due to his bankruptcy, the Chicago Board of Trade suspended his membership in 1934 and Livermore, sadly, committed suicide in 1940.
Livermore sounds like a product of his era, which was one of huge financial excesses and bubbles. It sounds like he was a huge speculator and was, at times, extremely successful. But should we revere him? Not based on what I have read! Bankruptcy and suicide is not a path I want to follow.
As a fellow blogger puts it, slow and steady steps…
So what did I learn from my weekend? Don’t spend all of it reading the financial pages… or blogs for that matter! Enjoy Monday’s bank holiday.