A Rothschild Moment – Lessons From History
The world’s billionaires can be largely grouped into four categories. About half of them are innovators. You know many of them because they’re behind some of the most iconic businesses we rely upon in our daily lives. Around a fifth of billionaires are industrialists or people that built large businesses over a 20- to 50-year period. A third group is comprised of 2nd-wave capitalists. These are commercially-savvy entrepreneurs who saw that the originals in their industry were in trouble and came after them, stronger and wiser.
The last group, also impressive in size with about a fifth of the pie, is CONTRARIANS.
In June of 1815, two centuries ago, Europe was in the midst of a bloodied war. Napoleon was leading his army to Belgium, to an area called Waterloo. On the other side of the battlefield were the British.
Reports of Napoleon’s loss, the legend has it, reached England’s superior banking family, the Rothschilds (who are of German descent), a full two days before the masses learned of the truth.
Here, we find one of history’s most famous stories of FAKE NEWS. According to the myth (or reality), the Baron spread a false rumor that Napoleon had won. The stock market utterly collapsed. The Rothschilds then went in and bought bonds, stocks, and anything they could without bringing attention to themselves.
When the TRUTH was revealed, you can imagine what buyers did. The gains were astronomical.
The media is all over the Covid-19 virus. The reason investors are calling their brokers in a panic, willing to liquidate the VERY SAME stocks that were trading at ALL-TIME HIGHS just a week ago, is because of the notion that this virus is bigger than reported or WILL become a pandemic of epic proportions.
It’s important to remember that while sellers were willing to part ways with their shares of the world’s best companies this week, on the other side of it were BUYERS.
For every person who no longer owns a part of America’s and the world’s most innovative, lucrative, and profitable businesses, a new individual owns more, and at a better price than they could have gotten just a week prior.
These buyers might be TOO EARLY, even way too early, but they might be taking their time, buying smaller amounts and waiting to see if the panic ensues.
Are some businesses worth less than before due to the virus? OF COURSE! The questions that need to be ask yourself are: (1) How much less? And (2) can they recover — and even come out stronger — by taking over additional market shares from their competitors?
As you can see, on February 19th, the President of the United States was tweeting celebratory notes about the global appetite for stocks. By Tuesday of this week, not many were hungry anymore.
Businesses are LIQUID on the public markets but the story is completely different on the private markets. Did any of your local businesses put up “For Sale” signs this past week?
Because it’s so easy to buy and sell businesses in a brokerage account, people do so. Don’t be tempted to rush into any action; buying or selling.
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The fact remains that in 1987, when the Dow Jones dropped 22% in a SINGLE DAY, Warren Buffett began buying shares of Coca-Cola, a business that would help Berkshire earn 50% on its money ANNUALLY just 30 years later. What Buffett paid in 1987 for his entire position is now distributed back as dividends every two years. Said differently, imagine buying a house for $100,000 today and receiving $50,000 in annual rent in 2050, all while the price of the house rose to $4,000,000!
That’s not the only time that Buffett went all-in after this type of crash. In the 1974 bear market (45% down), he bought the Washington Post, which has returned over 10,000% to Buffett’s shareholders.
We’ve never seen a correction as QUICK and BRUTAL as this since February 2018 and December 2018. Before that, it happened in October 1955.
The “market” is an abstract term for the collective body of buyers and sellers. Many of them know FAR LESS than you do about investments and are WRONG most of the time. A select few know FAR more than you do and are emotionally and intellectually wired to generate obscene returns – these are BILLIONAIRE CONTRARIANS and brilliant hedge fund managers.
The coronavirus is frightening, and it is not a mere case of the flu. It does impact China, which is GUARANTEED to undergo a recession. It is causing supply chain disruptions, cancellations of events and vacations, closures in thousands of factories, a lot of frustration, and human tragedy, but the answer to your problems is not to PANIC along with the masses.
Investors are selling stocks first and asking questions later, which might not be the best course of action to take, according to history. The Rothschilds are famous for saying that one should buy when there’s blood in the streets, EVEN if the blood is your own. Think about that sentence deeply.
Then remember that gold ALSO crashed last week!
Before its crash, both the STOCK MARKET and GOLD were the most overbought in their history.
The bottom line is that every unsustainable panic-buying period must come to an end.
I will have a secondary update, which will be published on Tuesday once we see how the markets end on Monday.
Stay safe and healthy!
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