Investing

When I was a child, my parents took me on a weekend trip to New York City.  It was September, 1985 and I can distinctly remember singing along to Madonna on the radio as we drove across the George Washington Bridge into the city.  I can recall the vibrancy and neon lights of Chinatown after dark.  I can conjure up images of the grandeur of Manhattan as viewed from the observation deck of the Empire State Building.

I was only a child of 9 years old at the time and was completely unable to adequately articulate my sense of wonder at the things I saw.  But I knew a cultural apogee when I saw one.  New York City in the mid 1980s was the epicenter of a golden age that was no less impressive than that enjoyed by ancient Athens in the 5th century BC or renaissance Venice in the 15th century AD.

What I really experienced was the zeitgeist of the city as it washed over and engulfed me.  The term “zeitgeist” was borrowed from the German language and refers to the spirit, energy or cultural milieu of an age.  While every time and place has its own zeitgeist, movies, television and books tend to mythologize the most brilliant and romantic of these eras, leaving them indelibly branded on the popular imagination.

This concept of zeitgeist is incredibly important to both the fine art collector and the antique investor.  When you purchase a late 19th century French Pointillist painting, what you are really buying, in part, is the zeitgeist of the era in which the work of art was created.  And this is equally true whether you collect 17th century Indian Mughal silver rupees, Mid-Century vintage fountain pens or Gilded Age Edwardian jewelry.

Zeitgeist sits alongside portability, quality, durability and scarcity as one of the 5 critical factors that determine an antique’s investment potential.  Although it is insufficient to catapult an antique to investment grade status on its own, in many ways zeitgeist is the most important of the 5 elements.  All else being equal, a work of art that hews closely to the popular aesthetic trends of an age will inevitably be more desirable and valuable than a similar work that inelegantly fuses two or more artistic movements together in an awkward transitional style.

In other words, art connoisseurs expect their 1920s Art Deco masterpiece to use streamlined linear elements and geometric motifs.  And antique collectors want their late 18th century Georgian objet d’art to reflect staid Neo-Classicist rigidity and formality.  Those works that most purely represent the stylistic era in which they were created are generally the most desirable.

Artists and craftsmen are always influenced by the cultural trends in which they live and work, even if they don’t consciously realize it.  These cultural influences inevitably find their way into artistic endeavors, subtly influencing an artist’s personal style in a myriad of ways.  As a result, even though an artist may not intentionally be trying to create art that reflects the current zeitgeist of an era, the prevailing cultural cross-currents will nearly always be visible in his works under close examination.

Zeitgeist also has a distinctly historical aspect as well.  Sometimes an era is dominated by monumental geo-political events that overshadow everything else.  World War II is a perfect example of this occurrence, where the entire world was pre-occupied with or embroiled in a truly global conflict.  The most desirable antiques from this era, like World War II military insignia, will directly reference this world-shaping conflict.

For those interested in further exploring this topic, I highly recommend watching the superb BBC documentary titled “Bright Lights, Brilliant Minds: A Tale of Three Cities“.  Narrated by the engaging art historian James Fox, this three part mini-series examines the cultural milieu of 1908 Vienna, 1928 Paris and 1951 New York City.  Specifically, it looks at how the rich cultural backdrop of these near-mythological 20th century golden ages allowed avant-garde art to flourish.  Unfortunately, while this series used to be available to stream through Netflix (at least in the U.S.), it isn’t as of the winter of 2017.

After spending an inordinate amount of time in the dark corners of the internet, I’ve come to a conclusion.  The world is dominated by two kinds of investors: the “everything’s alright” crowd and the “prepping for the zombie apocalypse” contingent.  The approaches these two radically different groups take to investing couldn’t be more different.

The unofficial motto of the “everything’s alright” crowd is “buy stocks for the long run™”!  They believe the world is gradually evolving into a post-industrial, information-driven society.  Advances in technology, medicine and finance, coupled with the genius of our corporate and political leadership, will inevitably guide humanity into a permanent age of boundless plenty.  For the “everything’s alright” investor, stocks are the obvious investment vehicle to capture humanity’s infinite future potential.

The “prepping for the zombie apocalypse” faction takes a diametrically opposed viewpoint of the future.  They believe the world faces a comeuppance for its poor economic, political and social choices.  Some think widespread raw material shortages or environmental disaster will usher in an unfamiliar age of universal scarcity.  Others believe that the global economy has been terminally mismanaged and, staggering from crisis to crisis, is bound to eventually collapse with devastating financial consequences.  A few even believe the very roots of Western Civilization are being systematically eroded by ill-advised social engineering, inevitably resulting in a disruptive fragmentation of society.

The “prepping for the zombie apocalypse” crowd generally considers “stacking” to be the best investment for the trying times ahead.  “Stacking” is a term used to describe the orderly stockpiling of supplies for the future.  These necessities can be as diverse as non-perishable foods, ammunition and guns, or gold and silver bullion.  The idea behind this kind of investing is that basic food and materials will be much more difficult to obtain in a new, crisis driven world and whoever owns them will be well placed to prosper.

I want to focus on the investment assumptions underlying the “prepping for the zombie apocalypse” group in this article.  First, I should state that I am sympathetic to some of their arguments about humanity’s future direction.  I do believe that the global economy has been terribly manipulated by the world’s central banks and that we will one day pay a heavy price for that arrogance.

But the “prepping for the zombie apocalypse” crowd broadly shares many beliefs that I find highly improbable.  For one thing, their basic underlying assumption is that society will more or less completely disintegrate under the stress of the challenges to come.  This means they do not think there will be effective Federal or state government structures, although some form of local government may persist.  They also implicitly believe that food, energy and goods distribution networks will either cease functioning altogether or become highly impaired.

If you accept these “zombie apocalypse” assumptions, then preppers’ and survivalists’ insistence on stacking basic supplies like food, ammunition and precious metals make a lot of sense.  If the electrical grid permanently goes down and gasoline becomes unobtainable, then yes, a lot of people will starve and violence driven by desperation will be commonplace.  Such an event would almost undoubtedly be the end of the world – or at least the end of civilization – as we know it.

This “zombie apocalypse” strategy is best exemplified by the way survivalists and preppers approach investing in precious metals.  They typically like buying fractional gold and silver bullion coins, including old U.S. 90% junk silver, under the assumption that it will be easy to trade a real silver dime or quarter for a loaf of bread when the time comes.  They usually eschew numismatic coins and antiques because they feel these assets will have no demand in a world where starving people are desperate for food and little else.  Some preppers don’t even bother with precious metals under the hypothesis that in a crisis no one will believe your gold and silver coins are actually gold and silver!

But I don’t think a total collapse of society is a given.  In fact, I don’t even believe it is probable.  A look at history is informative in this situation.  The 20th and early 21st centuries have been packed full of some of the most disruptive periods in human history, yet only very rarely would a survivalist’s full-blown “zombie apocalypse” preparations have made sense.  In most instances, a less extreme approach was warranted.

Even the most extraordinary disasters are temporary in nature, rarely lasting more than a few years.  For example, Weimar Germany’s devastating hyperinflation of the early 1920s was only about four years long.  Yes, it was a miserable four years, but when it ended, it ended for good.

Calamities are also often localized or regional in nature as well.  The Yugoslavian civil war of the early 1990s is a classic case, with different hotspots flaring up at different times and locations in the fragmenting Balkan nation.  Yet the surrounding European nations were practically untouched by this conflict, only experiencing a rise in refugees.  World Wars are about the only exception to this rule, when entire continents became engulfed in conflict.

Finally, a number of catastrophes result not in bullets and chaos, but in slower, more manageable changes.  Argentina’s experience in its currency crisis of the early 2000s best exemplifies this.  Capital controls were imposed, prices rose and crime increased, but otherwise life went on.

We can draw some conclusions from these situations.  First, a protracted, slow decline is much more plausible than a total collapse, “zombie apocalypse” scenario.  In fact, “zombie apocalypse” conditions – like Berlin or Tokyo in 1945 where food is all that matters – are vanishingly rare and almost always highly localized.

Second, a healthy investment allocation to hard assets – bullion, gemstones, art and antiques – is a prerequisite to protect yourself financially.  However, there are a couple rules you must follow to maximize their benefit.  It is imperative you have enough liquid cash, savings or bullion to see you through a temporary crisis.  You don’t want to be forced to panic sell illiquid, high value tangible assets in the depths of a crisis.  A corollary to this rule is that stockpiling two or three weeks worth of food, bottled water and cash is always prudent.

Art and antiques are not investments meant to be liquidated in the midst of financial chaos.  Instead, they are a play on the inevitable recovery that comes afterwards, once the dust and smoke clears.  These precious tangible assets have been coveted and desired by the wealthy and sophisticated for many centuries.  And, as long as humans walk the earth, that is unlikely to change.