Why survivalists shouldn’t gamble everything on gold billj 07.02.13



If you’re a survivalist, then you probably own some gold, and if gold’s recent dive is causing you anxiety and has you wondering if you made the right move in stocking up on bullion or shares of a gold-backed ETF, then let me clear up the uncertainty for you: you bought too much of the stuff. If you don’t really care what’s happening in the gold market right now, then however much you own is probably the right amount.

I say this not because I have an opinion about whether gold is going higher or lower (I don’t), but because I’m convinced that survivalists, by and large, are speculating when they should be investing.

Oh, I know that goldbugs, survivalists, and preppers of all types think that they’re investing, but many of them (most?) are just engaged in old-fashioned gambling. And unlike ordinary gamblers, who gamble on the outcomes of horse races, boxing matches, card games, and the like, survivalists and preppers tend to bet on the following kinds of things:

What government officials in this or that country will or won’t do

What Chinese hackers or terrorists are capable of

What will happen in the Middle East

The weather

Space weather

Virus mutations

Volcanic activity

And the list goes on. If you have a very large percentage of your assets tied up in a speculative position — gold, preps, land, a bunker — that pays out only in the event of a major, civilization-ending catastrophe in one or more of the above areas, then… well, I’m reminded of what Proverbs says about a certain type of person and his money.

As for me, yeah, I own a little bit of gold, and some guns, some ammo, a few months’ supply of food and water for my family, and so on; I keep a packed bug-out bag in my closet, and I’m constantly noodling away at varying degrees of preparation for a spectrum of catastrophes, from something local like an earthquake all the way up to TEOTWAWKI. But I’m definitely not a speculator.

What separates me from the gamblers is the size of my short position on civilization.

Size matters

To use an investing term, I’m what you’d call a “hedger”. With my preps, I’m basically buying catastrophe insurance the way that most people buy auto, home, and medical insurance. I buy this insurance as a small hedge against a gigantic long position that we all share: civilization. And make no mistake: we are all structurally long civilization — we depend on the modern world for food, clothing, shelter, medical care, education, and so on. Even the most off-grid survivalist is still vulnerable to health problems, and is therefore “long” the medical establishment in the sense that if they need to have their appendix taken out, then they’re not going to do it at home with a Bowie knife.

I draw two conclusions from the fact that I and everyone else in the first world are long civilization. First, I’m not going to “fight the tape” by placing a large bet against modern society. Everyone from the fry cook at McDonald’s all the way up to the President are invested in this “civilization” thing to one degree or another and will go to some lengths to keep it humming along so that they can get out of it whatever it is they think they have coming to them. I’m not going to bet more than a tiny portion of my assets against the combined efforts all of those people. Instead, I’d rather bet most of my chips on the idea that they’ll succeed, or at least not completely fail, in keeping civilization more or less together.

My second conclusion is that I do need to hedge against scenarios where all of society’s effort is for naught, so I should rationally allocate a relatively modest portion of my assets and income to catastrophe insurance. Note the words “relatively modest portion”, though. I’m aware that insurance can get expensive and can eat up a non-trivial portion of your income, and any amount of TEOTWAWKI insurance worth having is definitely not cheap, but nobody goes out and puts all of their savings into home insurance because they’re afraid that their house will accidentally burn down. You have to keep things sane.

Defining “sane”

The percentage of your income that you should spend hedging local and global catastrophe will vary from person to person, so I can’t give you a hard-and-fast rule for drawing a line between speculating and hedging. (Even in the world of traditional investing, that line is usually hard to draw.) I can only tell you how I determine my prepping budget.

A few years back, I read that the average upper-middle-class American male spends about $10,000 a year on golf — equipment, travel, training, and so forth. I’m an American male in a higher income bracket, and I don’t golf, so $10K per year is my prepping budget. In other words, from a household balance sheet perspective I look at catastrophe planning like a hobby, which it sort of is.

So that’s what works for me. You’ll have to find your own way of setting a budget for prepping, but if you go into it with the mindset of “I do not know the future, so I’m buying a bit of insurance and I’m also involved in a fun hobby/lifestyle”, then you can avoid ending up like the guy who put his life savings into physical gold bullion at $1,800/oz and is right now wondering if he’ll be able to afford to send his kids to college in the event that civilization limps along for another decade or two. And if you’re already that guy, my only advice is that you exit the casino as soon as you think you can, and don’t look back. Sure gold may go back up, or down, or up then down… nobody knows, and that’s the point. Don’t gamble your future on the actions of forces that are way, way beyond your control.

Real investing

If you are absolutely, 100 percent convinced that civilization is certain to collapse within your lifetime and the dollar will be worthless, and there’s no way that I can talk you into viewing TEOTWAWKI as a mere “tail risk” that you should “hedge,” then there are still some places where you can put your money without fear of losing your shirt in the event that the apocalypse is delayed.

1. Invest in your skills and in your health. You can’t control the price of gold, or the evolution of the flu virus, or sunspot activity, but you can control your diet, your exercise regimen, your self-defense capabilities, and your off-grid living skills. Get in shape, go to the range, start a garden, and generally spend your time and money on building yourself up. Seriously, if you’re out buying up gold, yet you’re in crap shape and can’t hit the broad side of a barn with a rifle, then sell that dead weight and use the proceeds to get a gym membership and a range membership. Otherwise, if TSHTF, that guy who is in shape and who can shoot will be enjoying your stash while your corpse ambles around looking for brains to eat.

2. Invest in a classical education. I lurk a lot of prepper/survivalist boards, and the thing that always strikes me about 99% of the conversations that go on in these places is the abject lack of historically informed imagination that preppers have. They have these Hollywood fantasies about What It Will Be Like, and they can’t really think through even basic survival scenarios systematically and rationally. My favorite example of this is the bug-out location discussion, where a prepper fantasizes about buying big stretch of land so that he and his little family of four will be safe there from the bad guys.

“Then, if the bad guys come on mah land, Imma shoot ’em!” is the standard conclusion to such threads. But as Ferfal has pointed out numerous times about the Argentinian collapse, and as anyone who’s read enough Medieval or ancient history knows, the people who live on isolated farms are the most screwed in a WROL (“without rule of law”) scenario. Why? Because in the woods, no one can hear you scream for help. In periods of lawlessness — which describes most eras of human history for most of humanity — the bad guys don’t roll up to your house in a post-apocalyptic war wagon, wearing special raider outfits and shooting AK-47’s into the air. No, they wear normal clothes, and while you’re out there on your porch peering through your rifle scope to see if that shiny Cadillac Escalade coming up your long driveway has a belt-fed machine gun and some human skulls mounted on it (it doesn’t), a few well-dressed psychos have slipped around back and are about to rape you, torture you, and leave you for dead. Congratulations! You’re about to accidentally rediscover why humans have always huddled together in tribes, villages, and walled towns throughout the lawless ages.

Your fences and property lines mean nothing to anyone in TSHTF, and you can’t patrol and secure all that acreage, nor are you truly prepared to just open fire at long range on anyone who shows up on “your land.” If you had bothered to read some freaking literature, and spent some time really flexing your brain hard on the classics of Western civilization, then you might have enough historical perspective, imagination, and insight into human nature to think all of this through. But instead, your imagination and critical thinking skills have rotted away in the glow of the TV, and even if it did occur to you to look at your Master STHF Plan through the lens of history (which it didn’t), you don’t have enough experience with organizing your thoughts to get started.

So instead of spending all your time on AR-15.com arguing over whether .300 blackout is a fad, try getting acquainted with the Western canon instead, and learn to bring it to bear on the problems of the day. Plus, the people who built this country the first time around were reared on the classics. If you intend to help rebuild it, you need to go back to the well.

3. Invest in community. If TSHTF, you’re going to need friends — friends who can farm, friends who can doctor, friends who can build, friends who can shoot. You can’t do everything yourself (unless you’re this guy), so find ways to put your money to work expanding the circle of people who owe you one, and who you can count on if things go south. Maybe this means joining a church and paying your tithes, or sponsoring a Boy Scout Troop, or throwing a pancake breakfast fundraiser for the local policeman’s union, or just hosting regular neighborhood barbecues. Whatever you do, spend time and money looking out for others, and they’ll look out for you when the going gets rough.

All of the above advice can be boiled down into the following:

Learn to succeed in the present world, right now. If you’re a big fat failure in life, and you’re sitting around by yourself waiting for the world to blow up so that you can rise up from your bunker and rule over the ruins, then you’re kidding yourself. People today have it pretty good, at least in the first world, and if you can’t succeed now when the wind is at your back, then do you really think you’re going to last more than 5 minutes in a brutal, WROL scenario? You won’t. If you’re a loser now, then you’re going to be a short-lived loser if TSHTF, no matter what’s in your survival stash. And if you’re a winner now, and you’ve learned how to overcome adversity, beat some long odds, and think critically for yourself, then you stand to fare a lot better in the event of a collapse. So go to college, start a business, join a club, run for office, write a book — spend the majority of your hard-earned money trying to succeed in there here-and-now, and you’ll be ready for whatever comes next, whether it’s good, bad, or catastrophic.

Addendum

Here are a few people who more or less agree with me: