Or as the commander of the French forces in 1919, Ferdinand Foch, said "This is not Peace. This is an armistice for 20 years".We can take this thread as a counterfactual or alterative to the marathon US vs. ex-US equity thread. Without delving into historical debate about whether WW2 was a "black swan", the vignette about a British or other European investor during WW2, bears some relation to a modern American (or not American) investor wondering about international diversification to reduce idiosyncratic risk in the US... maybe not an outright tragedy, but what we might term a lengthy disappointing period, say like 1968-1982.I feel this discussion relies on a somewhat dodgy premise, and has then gotten sidetracked into the merits of Gold - that latter should be a separate thread.
So WW2 was not a Black Swan, and indeed the likelihood, almost certainty, of another major power conflict between European powers, but encompassing Asia, was almost certain once you had the Spanish Civil War of 1936-39, and the Japanese invasion of China in 1937 (arguably, the real beginning of WW2, rather than Poland 1939, in terms of 2 major combatants being engaged against each other directly). The likes of HG Wells predicted many of the horrors that were to come ("The Shape of Things to Come") albeit overestimated them-- widespread use of poison gas against civilians*. Science Fiction writers predicted atomic weapons. Etc.
Perhaps WW1 was a Black Swan. It looks obvious to us, sitting in the 21st century, that the widespread use of machine guns, barbed wire & indirect artillery fire was a recipe for a bloodbath and strategic deadlock. That wasn't so clear in the summer of 1914, I am sure. It had been clear the major powers were converging to war, but, for example, the conventional expectation was that Austria-Hungary would administer a short sharp punishment to Serbia, for the assassination of the heir to the Austro-Hungarian throne in Sarajevo that summer by a Serbian terrorist. No one expected a long war "Home before the leaves fall".
Long periods of investment underperformance have accompanied:
- major financial crashes eg post 1871. This despite a speed of economic, scientific, technology and demographic transformation of the world rivalling our own (railways spreading throughout the world, steamships, radio, motor cars, aircraft, medical sterilisation, municipal water & sewer systems, streetcars etc)
1929-1945 would be another. And 2008-09 certainly had the threat of a repeat
- Antonio Gramsci — 'The old world is dying, and the new world struggles to be born: now is the time of monsters.' The period 1966-1981, after a period 1946-1966 when the easy gains of economic growth, Baby Boom etc led to an unprecedented rise in individual prosperity. Technological and societal change continued post 1966, but the stock market wrestled with the new problem of global inflation, commodities etc.
I would argue we might well be in the latter period. So far, however, stock returns have been very good (since 2010).
I certainly believe in the case for global diversification of investments. I am a bit more cautious on Emerging Markets having experienced the downsides of same.
As long as we understand this is an entirely theoretical exercise. In those days, only the wealthiest could do it. And if you lived in one of the continental powers (France, Italy, Germany, Poland, East Central Europe, Low Countries etc) it was entirely academic - your real problem was that you could be swept up in death, destruction and chaos.So, is it worth it? Is international diversification almost invariably a good thing? It would have been, to a continental European investor in 1939-1945, with the standard roster of assumptions.... there being access to markets, some way of retaining one's account even in dire times, and so on. These may or may not have been true, but they are presumably true today. What matters isn't specifically what an investor would have done then... but what, by drawing lessons from the past, an investor should do now.
Nowadays it's easier to do. However the government has much better chance of tracking our assets due to Electronic Data Interchange and global financial agreements on sharing that data. The US is particularly interested due to its system of global taxation on citizens-- we've all signed forms swearing blindly that we are not US citizens. And banks have paid billions in fines for helping US citizens to evade that net - so they won't be in a hurry to do so again. (From memory, the head of US private clients at Credit Suisse went to prison over it? Can't remember which bank).
So yes one can diversify internationally. Should do, in my view. But one should also be cognisant that if a war-like era looms, then you will wind up with exchange controls & financial restrictions, and perhaps penal taxation on those investments. International investing will not have protected you.
* in actual fact, this was largely limited to the Italians in Abyssinia (Ethiopia) ?1935? And the Japanese against the Chinese. So a balance of terror - each party considered it seriously (Churchill had plans made to drop mustard gas on German invasion forces, had they crossed the Channel in 1940) and rejected it because of the fear of enemy reprisals. Hence the panic at the port of Bari in southern Italy when a shipload of Allied chemical weapons shells exploded and a toxic cloud began to drift towards German lines. The Allied commander had to get on an open channel to warn the German commander. But note the invasion force of Italy brought chemical weapons, just in case.
Statistics: Posted by Valuethinker — Sat May 11, 2024 9:45 am — Replies 30 — Views 2322