Summary
Highlights
The first commandment emphasizes that individuals must take charge of their own savings and not rely on the state. Financial education in France is lacking, and people often expect the state to handle their problems. However, the state is more likely to exploit personal savings, especially through fiscal advantages that hide potentially bad investments. Being financially independent is a step towards personal freedom, as Dostoevsky said, 'Money is stamped liberty.' Self-reliance in managing your finances allows you to say no to undue influence and ensures your future, rather than expecting an unreliable state to do so.
The second commandment is about diversifying investments across different asset classes: cash, bonds, stocks, and gold. While gold and stocks have intrinsic value, cash and bonds provide stability and liquidity. Different economic cycles favor different assets. For example, during inflation, gold is preferable, while during deflation, bonds are better. The key is to avoid excluding any asset class and to dynamically adjust your portfolio based on economic conditions. The focus should be on what not to have in your portfolio, removing assets that have no chance of performing, rather than constantly seeking which ones to add. This approach helps achieve a respectable performance.
The third commandment suggests rebalancing your portfolio quarterly. This means selling assets that have performed well to buy those that have underperformed, bringing the portfolio back to its initial allocation (e.g., 50/50). This strategy ensures you sell high and buy low, preventing emotional decision-making. Historically, while assets like gold and German bonds have shown similar long-term returns, their short-term performance fluctuates. Rebalancing capitalizes on these fluctuations, making it a powerful tool for long-term growth and managing volatility.
The fourth commandment warns against debt, especially during periods of deflation. In deflationary environments, the value of assets decreases, while the debt amount remains constant. This means the principal repayment becomes more burdensome. For example, if you buy a house for 100,000 euros and its value drops to 90,000, you still owe 100,000. French proverb says, he who pays his debts enriches himself, which holds true in deflation. It's crucial to avoid taking on debt for assets that are depreciating, like real estate in certain areas, as seen in parts of France.
The fifth commandment advises staying vigilant to market signals rather than relying solely on official statistics. Indicators like GDP and inflation rates, often manipulated by the state, can be misleading. A more reliable approach is to observe market movements, such as comparing stock market performance to oil prices. If the stock market grows slower than oil prices, it suggests an economic recession. Similarly, comparing gold to government bonds can indicate inflationary or deflationary trends. By using these market signals, individuals can form their own economic assessments without needing to trust official, potentially biased, data.
The sixth commandment highlights gold's role in protecting against inflation. Gold preserves its value over time, unlike fiat currencies that depreciate. While it doesn't offer productivity or growth, gold retains purchasing power, making it an excellent store of value during unstable economic periods or when growth is stagnant. Furthermore, gold acts as a safeguard against currency collapse, as demonstrated in historical events like the Lebanese currency crisis. This dual protection makes gold a valuable asset for maintaining wealth.
The seventh commandment recommends prioritizing cash savings during crises. However, it's crucial to hold cash in a well-managed currency, such as the Swiss franc or Swedish krona, rather than a potentially unstable one like the euro. The purpose of having cash during a crisis is twofold: to provide protection against market volatility and to seize opportunities when asset prices are depressed, allowing for significant gains. Crisis periods are opportunities for those with liquidity to acquire valuable assets at reduced prices, as seen during the 2008 US crisis.
The eighth commandment introduces the 7-year moving average rule to identify significant structural trends. While historically rooted in biblical cycles, this method has proven statistically effective in differentiating between market noise and true structural shifts. If an asset class consistently underperforms its 7-year moving average, it signals a deeper problem beyond short-term fluctuations. This rule can help investors avoid major downturns, like past market crashes, by indicating when to reallocate away from underperforming assets. It's a way to detect fundamental problems in the economic system.
The ninth commandment stresses the importance of patience and prudence. This involves not acting on privileged information, avoiding impulsive decisions, and waiting for opportune moments. The rebalancing strategy automatically enforces patience, as it dictates buying when assets are cheap and selling when they are expensive, irrespective of market sentiment. Markets are designed to mislead a majority of investors, so a disciplined, unemotional approach, guided by established rules, helps to counter this tendency.
The tenth commandment, perhaps the most critical, is to continuously learn and adapt. The financial world is constantly changing, and what worked yesterday might not work today. Old indicators can become obsolete, as illustrated by the changing relevance of central bank dollar reserves. Investors must remain humble, question their assumptions, and never believe they have fully understood the market. Adaptability is key, especially as global economic power shifts, for example, towards the Asian region. However, investing in internationally diverse French companies can still provide exposure to growing markets.