How to Preserve Life and Wealth in Turbulent Times | Bill It Up Memo

Recently, I recorded a podcast about how people lost or preserved their wealth during turmoil, and I found it very relevant to today's life. Below is the Chinese content for reference. Much of it is sourced from https://www.amazon.com/Wealth-War-Wisdom-Barton-Biggs/dp/0470474793. Friends who are interested can buy it to read.

My biggest realization is that everything has its "formation, existence, decay, and emptiness." Where there is arising, there is ceasing. We must do our best in everything, but in the end, we must also accept "all things are impermanent." In the face of great changes in the era, even the entire family of the Russian Tsar was insignificant, ultimately being wiped out.

Location, location, location

Important things should be said three times. Choosing the right geographical location is crucial; otherwise, you may face a total loss of assets or, at worst, annihilation.

• a. A Jewish family during World War II split into two paths; one part fled to France and was completely wiped out, sent to concentration camps, while some relatives escaped to Portugal and survived.

• b. In 1943, many Nazis had already started secretly transferring money to South America. They did not transfer money to Eurasia or the United States, and this choice was correct at least at that time. Of course, they still faced reckoning in South America after the war, but that’s another story.

• c. Most residents of the Soviet Republic in 1991 saw their assets wiped out overnight because most ordinary people had all their wealth tied up in the Soviet system.

If you find yourself in a predicament, be perceptive and make your own judgments

Think about who is really winning? In 1942, Nomura Securities had already sensed Japan might ultimately lose the war due to food shortages at home and the dismantling of park fences around the imperial palace for iron. Although newspapers and radio only broadcast positive news about the war, Nomura observed that many naval officers and pilots who participated in the battles of Midway and Coral Sea had geishas, and when they failed to return, their geisha girlfriends began to panic.

The Nomura family sensed trouble and began to gradually sell their stocks, even short-selling. However, as a Japanese conglomerate, they had no way to allocate assets to the victorious countries. So what did they do? They asked themselves what they should hold if Japan lost and had to rebuild after the war. They believed that land and real estate would become the best tools for preserving value after the war, so they invested in commercial and residential properties. These assets provided funding for Nomura Securities' rapid expansion after the war, and Nomura Securities ultimately became a major securities company in Japan.

The German Case

In the 1930s, many German Jewish aristocratic families had great trust in the state, firmly believing, "We are Germans too; the storm will soon pass." They had assets, status, and social recognition, with no sense of urgency to leave their homeland.

However, their judgment was soon shattered by reality. After the Nazis came to power, Germany implemented strict controls on foreign exchange and imposed heavy taxes of up to 78% on asset transfers (foreign exchange). By the time of the "Night of Broken Glass" in 1938, more and more people realized they had to leave. But by then, it was too late. Visas were hard to obtain, and funds were frozen, leaving many trapped within the borders.

This history reminds us: When you feel "there's no need to leave now," it may be precisely when you still have choices. --- Einstein made a good judgment and immigrated to Princeton early on to teach.

In times of chaos, never go all in

• a. In 1937, even Churchill was attracted by the American bull market and leveraged to go long, only to be wiped out by 1938. He later repaid his debts through continuous writing and publishing.

• b. Jewish wealthy individuals in Germany, with most of their assets exposed in Germany (real estate, businesses, currency), ultimately found themselves in a boiling frog situation; the later they left, the more reluctant they were to abandon sunk costs, and in the end, they lost both their lives and money.

• c. In contemporary times, the average lifespan of companies in the S&P 500 index has shrunk from 35 years in the 1950s to 10-15 years.

  • 1958: The average lifespan of S&P 500 companies was 61 years;

  • 1980: Decreased to about 30 years;

  • Around 2020: Dropped to about 18 years;

  • Predicted by 2030: May only be around 12 years.

Be aware of the risks of "self-custody" and "third-party custody"

Consider the reconstruction of political systems and wealth in a major upheaval: in simple terms, it means that all previous property documents may become invalid. The money you have in the bank, the gold you own, and the real estate you buy are essentially all under third-party custody. You might think that real estate should be in your name, but in reality, it depends on the local government's recognition of your property documents, so essentially, you are also under the custody of a government.

• a. During World War II, Polish nobles lost their estates to confiscation by Germany. After the war, they thought they could reclaim them, but Poland was assigned to the Soviet sphere of influence under the Yalta Agreement, meaning the nature of the regime changed, and private property was not recognized. In the past three to four years, Russian wealthy individuals, especially oligarchs, had all their assets in NATO countries frozen. When NATO countries imposed sanctions, the hardest assets for Russian oligarchs in London and New York to take away were real estate.

• b. During World War II, Japanese assets in the United States were also frozen or even confiscated. On December 7, 1941, Japan attacked Pearl Harbor, and on December 8, the U.S. declared war on Japan, officially entering World War II. Subsequently, the U.S. quickly took measures to freeze the assets of the Japanese government, businesses, and individuals in the U.S., including 120,000 Japanese Americans (two-thirds of whom were U.S. citizens), who were sent to wartime internment camps. Many families were forced to sell their properties, farms, and businesses at low prices before leaving, and most were unable to recover these assets after the war.

• c. After World War II ended in 1945, the Tito government in Yugoslavia issued orders to collectively strip all Germans (including civilians) of their nationality and property rights. They were viewed as a group of war criminals and were not allowed to own land, property, or enjoy normal civil rights. Thousands of German civilians (including children and the elderly) were sent to labor camps, with an estimated 50,000 to 60,000 dying in these camps. Especially between late 1944 and 1946, some areas experienced systematic cleansing: German men were forced into labor or executed on the spot; German women and children were raped, abused, and killed.

On the custody of gold (self-custody? Or third-party custody?)

Gold stored in French bank vaults by Jews was confiscated after the German occupation when all vaults were opened. However, gold buried in secret locations known only to them was preserved after the war.

• a. I also heard an interesting story about a Jewish family that not only kept 10% of their family wealth in gold but also, due to their experience of "third-party custody" being confiscated during World War II, they all kept their gold themselves and converted most of it into coins rather than bars. Because only coins can be used for small payments, allowing you to navigate through checkpoints in times of chaos to reach your desired refuge.

• b. In 1939, 20% of the wealth of most French families was in gold bars, which were either stored in Switzerland or buried in the backyards of castles. In that terrible era, using gold to hedge against disaster posed three problems:

  • First, to sell some gold, you had to find a real buyer or a black market dealer. In a brutal society filled with informers and traitors, anything could happen; you might end up being stabbed in an alley or locked in a cellar by the Gestapo.

  • Second, whether it was a real buyer or a black market dealer, the price of gold would be heavily discounted, but due to the lack of a public trading market, this situation was unavoidable.

  • Third, if you were in occupied France, you had to hide your gold. From the fall of 1940, all French banks had to report the contents of their vaults to the Germans. The occupying authorities issued bonds based on this information, "borrowing" gold and then transporting it to Germany. After the war, these bonds were never honored because the Nazi government destroyed the relevant records during the Battle of Berlin. As the Allies drew closer to Paris, all remaining gold was confiscated by German officials to help them evade the impending disaster.

However, in the chaos of the last few years of the war, buried gold in the backyard was more valuable and safer than any other asset class, such as real estate or businesses. Overall, the history of World War II teaches us not to lock gold and jewelry in domestic bank vaults.

Conclusion

Chaos is the norm; prosperity is the exception. In the recorded history of humanity over the past 3,500 years, there have been fewer than 300 years without documented wars globally.

Our advice to everyone is:

1. Never go all in: Diversify asset classes, geographical locations, and third-party/self-custody options;

2. A gentleman does not stand under a dangerous wall; be proactive in preventing disasters and avoid an ostrich mentality. When everyone wants to leave, it may be too late to do so.