I have recently read Wealth, War and Wisdom by Mr. Barton Biggs. This book was an enjoyable read and I learned more about World War II and how markets reacted during the period from the Great Crash of 1929 until approximately 1945.
The main thesis of the book is that there is wisdom in crowd behavior as exhibited by market prices. Although the markets may misprice assets and bubbles do occur, Mr. Biggs states that the markets correctly predicted the future at major turning points in WWII. In particular, Mr. Biggs states that markets bottomed and turned during the Battle of Britain and The Battle of Midway and peaked in Germany when they attacked Russia.
Mr. Biggs makes the case that real returns in stocks far surpassed returns in bills and bonds for all countries. In particular, real returns from stocks in the countries that were “lucky,” generally the ones who won the war and were not occupied, also surpassed the real returns from stocks in the countries which were unlucky, generally the losers of WWII and those that had been occupied by the Axis powers.
There is also good advice for wealthy people and what they should do in times of crises and war; however, I am not going to go into this here. In addition, Mr. Biggs also observes how black marketeers became wealthy in all the wars around the world; that food, warm clothing, and cigarettes became tradable commodities, and easily transportable wealth like jewelry was helpful to have during these times.
The main conclusion of the book is best summarized by Mr. Biggs himself:
“I argue that the stock market, because it is the collective conclusion of multiple, independent, diverse, decentralized, motivated judgements, is a far different creature from the mob or group. This is not to claim that the stock market is all wise or cannot make mistakes or in the short term misjudge events. I am saying that in general its judgement is good and worth paying attention to.”