Essay | How to Protect Wealth in Times of War

Recently, I recorded a podcast on how people lose their wealth/preserve their wealth during the turmoil, and I think it is very useful for today's life. The following is the content in Chinese for reference. A lot of the content is from Barton Biggs's "Wealth, War, Wisdom", and those who are interested can buy it and read it. My biggest feeling is that all things have "becoming, dwelling, bad and empty", there is a dependent origin, there is a fate to perish, we have to do everything hard, but in the end we must also accept the "impermanence of all things". In the great changes of the times, even the whole family of the Russian tsar was insignificant, and finally it was wiped out.

1. Location, location, location. Important things are worth repeating three times. Choosing the right geographical location is very important, otherwise, it can lead to financial ruin or worse, total extermination.

There was a Jewish family that split into two paths during World War II; one path fled to France, resulting in their complete annihilation as they were all sent to concentration camps, while a part of their relatives escaped to Portugal and ultimately survived.

In 1943, many Nazis had already begun to secretly remit money to South America. They did not remit money to the Eurasian continent or the United States; this choice was at least correct at that time. Of course, they still faced reckoning in South America after the war, but that is another story.

In 1991, the majority of the residents of the Soviet Republic lost their wealth overnight, as most ordinary people had all their assets in the Soviet currency.

2. If you find yourself in a dilemma, be observant and make your own judgment: think about who is actually winning the hand?

By 1942, Nomura had already sensed that Japan might eventually be defeated due to the shortage of food in Japan and the removal of the fence in the park around the Imperial Palace. Although newspapers and radio broadcast only good news about the war, Nomura observed that many of the naval officers and pilots who participated in the battles of Midway and the Coral Sea had geisha in captivity, and when they failed to return, the geisha girls began to panic. The Nomura family sensed that the situation was not going well and began to gradually sell their stock holdings, or even sell them short. But as a Japanese consortium, there is no way to allocate assets to the victorious countries, so what should they do? They asked themselves, if Japan was defeated and rebuilt after the war, what should it hold now? They believed that land and property would be the best store of value after the war, so they bought commercial and residential properties.

These assets provided funding for Nomura Securities' rapid expansion after the war, and Nomura Securities eventually became a major securities company in Japan. The case of Germany: In the 1930s, many German Jewish noble families had great trust in the state, firmly believing that "we are also Germans, and the storm will soon pass." They had assets, status, and social recognition, and felt no 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 to go. Visas were hard to obtain, funds were frozen, and many ended up trapped within the borders.

This history reminds us: when you feel that "there's no need to leave now," it may be the time when you still have a choice. — Einstein made a good judgment and emigrated early to Princeton to teach.

3. In chaotic times, never go all in.

In 1937, even Churchill was attracted by the American bull market and leveraged to go long, but by 1938 he was liquidated. Later, he managed to pay off his debts through continuous writing and publishing.

In Germany, Jewish wealthy individuals, because most of their assets are exposed to Germany (real estate, businesses, currency), ultimately found themselves in a situation akin to boiling frogs in warm water. The later they left, the more reluctant they became to abandon their sunk costs, and in the end, they lost both their lives and their money.

In contemporary times, it is even more so. The average lifespan of constituent companies in the S&P 500 Index has shrunk from 35 years in the 1950s to 10-15 years. In 1958: the average lifespan of S&P 500 companies on the list was 61 years; in 1980: it dropped to about 30 years; around 2020: it had decreased to about 18 years; and it is predicted that by 2030: it may only be around 12 years.

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

We need to think about the restructuring of political systems and wealth in the context of major changes. Simply put, it is possible that all previous property documents could become void. The money you have in the bank, the gold you own, and the real estate you purchase are essentially all under third-party custody. People might think that real estate should be in their name, but in fact, real estate depends on the local government's recognition of your property documents. So essentially, you are also under the custody of a government.

In World War II, the estates of Polish nobles in their own country were finally confiscated by Germany, and after the war, they thought they could take them back, but Poland was assigned to the Soviet Union's sphere of influence in the Yalta Agreement, which is equivalent to saying that the nature of the regime has changed, and private property rights are not recognized at all. Over the past 3/4 years, all the assets of the Russian rich, especially the oligarchs, in NATO countries, have been frozen. When NATO countries want to sanction, the Russian oligarchs are in London and New York, and the most difficult thing to take away is real estate.

During World War II, Japanese assets in the United States were also frozen and even confiscated. On December 7, 1941, Japan attacked Pearl Harbor, and on December 8, the United States declared war on Japan, officially joining World War II; thereafter, the United States quickly took measures to freeze the assets of the Japanese government, businesses, and individuals in the U.S. Among them, 120,000 Japanese Americans (two-thirds of whom were U.S. passport holders) were sent to wartime internment camps, and many families were forced to sell their properties, farms, and businesses at low prices or lose them outright before leaving. After the war, most were unable to recover these assets.

At the end of World War II in 1945, the Tito government of Yugoslavia issued an order to collectively deprive all Germans (including civilians) of their nationality and property rights in Yugoslavia. They are considered war criminals and are no longer allowed to own land, property, or enjoy normal civil rights. Tens of thousands of civilians of German origin, including children and the elderly, have been sent to labour camps, and an estimated 50,000–60,000 people have died in these camps. In particular, between the end of 1944 and 1946, there was a systematic purge in some areas: German men were forced to work or executed on the spot; Women and children in Germany have been forced, abused and slaughtered.

5. Regarding the custody of gold (self custody? Or 3rd party custody?) :

The gold that the Jewish people had entrusted in bank vaults in France was confiscated by the German army after they occupied the area, as all the vaults were opened by the German forces. However, the gold that was buried in secret locations known only to the individuals was preserved after the war.

I also heard a very interesting story about a Jewish family that stored 10% of their family wealth in gold. Due to their experience of having their assets confiscated during World War II through "tripartite custody," they all kept their own gold and converted most of it into coins instead of bullion. This is because only coins can be used for small payments, allowing you to navigate through chaos, passing through multiple checkpoints from war zones to reach the area where you want to seek refuge.

In 1939, 20% of the wealth of most French families was gold bars, which were either deposited in Switzerland or buried in the backyard of the castle. In those terrible times, there were three problems with hedging against disasters with gold: First, in order to sell some gold, you had to find real buyers or black market dealers. Anything can happen in that barbaric society full of whistleblowers and betrayers, and you could end up stabbed to death in an alley or locked up in a cellar by the Gestapo. Second, the price of gold will be heavily discounted by both real buyers and black market traders, but this is inevitable because there is no open trading market. Thirdly, if you stay in occupied France, then you have to hide gold. From the autumn of 1940 onwards, all French banks were required to report to the Germans the contents of the safes. The occupation authorities issued promissory notes accordingly, "borrowed" the gold, and then shipped it to Germany. After the end of the war, these promissory notes were not honored because the Nazi government destroyed the archives during the Battle of Berlin. As the Allies moved closer to Paris, all remaining gold was confiscated by German officials to help them escape the impending catastrophe. However, in the chaos of the final years of the war, gold buried in the backyard was more valuable and safer than any other asset class, such as property or businesses. Overall, the history of World War II teaches us not to lock gold and jewelry in bank safes in your home country.

6. Summary: Chaos is the norm, while prosperity is the exception.

In the recorded history of humanity for about 3,500 years, there have been less than 300 years without any recorded wars globally. Our advice to everyone is: First, never go all in: have diversification in asset classes, geographical diversification, and diversification in third-party custody/self-custody; Second, a gentleman does not stand under a dangerous wall, one must be proactive in preventing problems, and avoid an ostrich mentality; when everyone wants to leave, it may be too late to do so.