Our kitchen table was literally covered with stacks of cash.
Even by western standards, it was a significant sum. But in a totalitarian, communist country, amassing this much money in one’s lifetime was nigh impossible.
I can only imagine the kinds of sacrifices my grandfather made along the way. And yet, his hands trembled visibly as he surveyed the sum of his life’s work.
A few minutes ago, the news broadcaster announced an urgent monetary reform, yet another attempt to prop up the country’s crumbling financial system.
Sure, each household was allowed to convert a ridiculously tiny amount into a new national currency.
However, the remaining money would cease to have any value overnight.
In other words, 99% of our family’s entire net worth was about to evaporate.
The Benefits Of Foresight
In the year preceding that fateful evening, my father had multiple arguments with my grandfather.
Repeatedly, he made the case for converting our family’s cash savings into dollars.
It was a tough sell.
To begin with, owning foreign currency was illegal.
Not impossible, thanks to the black market. But, given the dodgy characters involved, the very process of buying dollars was dangerous in itself.
People often got scammed, or worse.
My grandfather just couldn’t pull the trigger.
It was all too risky.
Also, the system couldn’t just collapse.
And thus, he traded a non-zero chance of losing his money to local criminals for a 100% chance of losing his money to the government.
To short-circuit the suspense, let me just say that our family ultimately managed to avoid financial ruin, albeit at a significant cost.
Phone calls were made. Favors called in. Money changed hands.
Ultimately, our family preserved enough capital to live a decent life over the next five years or so.
Until, in yet another foresightful move, my father decided he’d had enough – and we left the old country forever.
Two decades later and thousands of miles away, there was yet another heated argument taking place around the proverbial kitchen table.
This time it was my turn to be exasperated, all while trying to get my father to change his investment strategy.
To reduce his cash holdings.
Convert some of the egregiously expensive (remember load fees?) mutual funds into index trackers.
And put some money to work in real estate.
I might as well have been talking to a wall.
My dad, adventurous enough to uproot his entire family in search of a better life halfway around the world, just couldn’t come around to the idea.
It was all too risky.
No, he couldn’t afford to lose his money in the stock market or a levered real estate deal.
Then again, we’ve all seen this movie before. And if you think it’s unique to immigrant families like ours, you may want to reconsider.
Change In Perspective
Living through the Great Depression was a life-changing event.
Imagine for a moment that overnight, your bank folds.
Now, deposit insurance wasn’t a thing back then, which means that all of your savings and investments would have evaporated in an instant.
You are now living from paycheque to paycheque… except that your job is also gone.
Which is exactly what happened to millions of people in the 1930s, leading to a permanent change in their attitudes to risk – and investing.
The vast majority didn’t trust the banks for the rest of their lives. They hoarded cash and avoided the stock market.
Many of them were so averse to debt, they ended up renting for the rest of their lives.
I can only imagine the silent horror with which they observed their children, the baby boomers.
Entrusting banks with their money. Taking out mortgages to buy homes. Investing in equities.
Haven’t they learned anything?
Ultimately, baby boomers made out like absolute bandits, financially speaking.
And now, it’s their turn to shake their heads as they look at millennials.
NFTs? Crypto? DeFi? Meme stocks?
What the heck is going on here?
It’s not just investing money that has changed. The fundamental nature of making money has also taken a dramatic U-turn.
Gone are the days of being a good company man, faithfully climbing the career ladder for decades – and ultimately being rewarded with a corner office and a C-suite title (with compensation and an expense account to match).
These days, billion-dollar fortunes are being made in a matter of years, not decades.
Surely a house of cards, on the verge of total collapse.
No One Is Stupid
All of the above may seem mighty contradictory, but it really isn’t.
The fundamental tenet to keep in mind is that when it comes to money, no one is stupid.
More often than not, people are simply playing different games.
The Depression-era generation wasn’t stupid.
On the contrary, you’d have to be stupid to trust the financial system ever again after being screwed over like they have been.
The boomers weren’t stupid either.
They saw the wealth-creation potential of the stock market. They realized that their generation wants to own, not rent.
So they piled into equities and real estate.
And millennials aren’t stupid either.
With asset prices where they are today, compounding your way to wealth in the stock market isn’t nearly as attractive as it used to be, especially on an average income.
Hence, they resort to a modern-day equivalent of playing a lottery, knowing full well this might be their best chance to ascend up the wealth ladder.
And yes, the same applies to jobs.
Fifty years ago, the US economy was highly regulated in nature, creating well-entrenched oligopolies in most industries.
Hence, if you were looking to make money, the most obvious path was to join the winners and climb up the career ladder.
The one-two punch of deregulation and technological disruption changed all that.
No, you no longer need to be working at AT&T to have a shot at making the big bucks.
As a matter of fact, unless you are this guy, you pretty much want to avoid working at AT&T.
Today, joining a small but fast-growing SaaS company has a far higher expected value than working your way up at Walmart for decades on end.
No one is stupid. Everyone is just playing a different game.
Madness Wisdom Of The Crowds
We also shouldn’t underestimate the power of belief.
The stock market hasn’t always been a well-oiled money-making machine.
In the early days, corporate governance was non-existent. Frontrunning was commonplace. Pump and dump schemes take place to this day.
But the stock market had promise. And because people believed in the promise, they piled in.
And because they piled in, more and more companies realized that issuing equity may be a good way to raise money.
Regulators realized that improving the rules of the road might serve the common good.
A virtuous cycle of constant progress, creating one of the most amazing wealth-building tools at our disposal.
At this point, it’s easy to make this post about crypto – which it isn’t.
Rather, it’s a reminder that one day, I will become that grandfather. Sitting at the kitchen table, trying to decipher the strange concepts my son is trying to get across.
Except that I won’t let it happen.
It’s easy to get entrenched in our ways as we age. Arguably, the more successful you are, the easier it is.
I mean, why change your approach if you’ve figured out – and applied – a proven playbook for making money?
Well, as my experience shows, nothing is permanent.
Sure, some things continue to work spectacularly well through decades and centuries. And yet many others backfire spectacularly.
In other words, keep your eyes open and your ear to the ground.
And yes, my emerging thoughts on crypto and blockchain are coming next week.
Thank you for reading!
About Banker On Fire
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Banker On FIRE is a London-based M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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