Teachers and other small investors need to look at the investment landscape as a financial battlefield. Conflicted armies of salespeople, brandishing lawyer-produced camouflage are an imposing enemy. The corpses of educators’ decimated investment portfolios are strewn throughout a fifty-state battlefield.
Who better to learn the ways to combat a potent enemy than from the greatest conqueror of all time: Genghis Khan. His empire stretched eight million miles. His well-earned reputation as “the scourge of humanity” struck fear into the heart of the bravest soldier. When Mongol Hordes arrived, death and destruction soon followed.
Khan did not create an empire by displaying compassion. His most famous saying was, “Surrender or die.” These words were no idle threat. On numerous occasions, those who dared to defy Khan were completely annihilated. Literally nothing was left alive in the towns and cities that foolishly resisted his evil empire. He eradicated entire cultures.
What can be learned about investing from this “scourge of God”? It turns out, plenty. Many teachers are defenseless sheep in the 403(b) landscape. They are often vulnerable prey for the Mongol like Hordes of annuity salesmen who are looking to seize their own type of bounty in the form of egregious commissions and high fees.
There is no need for mild-mannered teachers to become bloodthirsty warriors armed with the feared Mongolian bow. However, they certainly would be much better prepared for financial combat if they learned some lessons from Genghis Khan.
- Costs are imperative: The Mongols were known for traveling light. They drank the blood from their horses when food was in short supply. They used captured prisoners for frontal attacks which preserved the lives of their crack troops. Traveling light and preserving what they had, won many victories on the battlefield. Teachers could use this same philosophy by exchanging their high-cost annuities for low-cost index funds. This savings will help enable them to survive the most grueling battle of all, a possible thirty- year long retirement.
- Implementing an Evidence Based Strategy: The Mongols did not enter a battle unless they had thoroughly probed their enemy for any possible weakness. Sometimes, they would wait years before striking to insure the greatest possibility of success. Teachers can use this same strategy when deciding how to invest their money. Data has shown having a portfolio that includes both small company and value stocks will increase returns over time. Not acting rashly and using a strategy based upon data will help win any war.
- Open up to new ideas: Initially the Mongols were not very good at siege warfare. Heavily fortified cities were their Achilles’ heel. They changed strategies when they invaded Persia and brought captured Chinese prisoners to advise them in these assaults. They knew the old ways did not work and they had to change their method of thinking to be successful in this new environment. Teachers could look at today’s bond market and plot a strategy for a brand new world. With interest rates so low, it might be wise to consider increasing the stock component of a long-term portfolio. Fighting the last war is usually a plan that is doomed to fail.
- Diversify beyond your borders: The Mongols conquered lands that stretched from Asia to the Middle East and Europe. This provided them with an abundance of revenue and resources that sustained their empire. Teachers could learn from this by ignoring the home country bias and instead globally diversifying their portfolios. The goal of a diversified financial empire is one worthy of Khan.
- Discipline wins wars: The Mongols were known for their ability to withstand hardship. They could go on six hundred mile marches and eat once every forty eight hours. While it is unnecessary to go these extremes, sticking with a sound investing strategy is the real secret to conquering the dreaded foe of lost purchasing power over long time periods.
The greatest lesson Genghis Khan can give to teachers and others is the idea that most historical events happened despite the prognosis of any “expert forecaster.”
In the words of Peter Bernstein: “We like to rely on history to justify our forecasts of the long run, but history tells us over and over again that the unexpected and the unthinkable are the norm, not an anomaly; that is the real lesson of history.”
Genghis Khan was an illiterate Mongolian nomad. He lost his father when he was nine and his family was abandoned by their clan and left to die. He ends up leaving his DNA in close to 18 million people alive today!
Unlike other world conquerors, like Julius Caesar and Alexander the Great, he did not have the benefit of high-priced tutors. What was more unpredictable than this impoverished boy growing up in the wastelands of Asia and becoming the most feared conqueror the world has ever seen?
The same lesson goes for investing. The only certainty in this game is the uncertainty of the markets. Despite what you might hear from the fortune tellers of financial media, we cannot predict the future.
Understand these lessons before going into financial battle. Learn from the Mongols strategy and discipline. History teaches us many things. Number one is to expect the unexpected. This will help you become a hunter of higher risk-adjusted returns rather than the hunted prey of financial predators.
Source: Genghis Khan, His Conquests, His Empire, His Legacy by Frank McLynn