Where Did All The Money Go?

So I find myself sitting on an airplane buzzing my way back from Perth and I am struck by thoughts of how does one hang onto their money after making it. This topic of pondering was prompted by my visit to WA as it seems that nobody there had a plan for hanging onto the money they made from the mining boom or rather the mining construction boom since there wasn’t really a commodities boom.

What is most fascinating about Perth is how quiet it is compared to Melbourne or Sydney. We arrived at what would nominally called peak hour on a Friday only to find that most people didn’t get the memo about peak hour being a nightmare. You could have fired a cannon down most streets and not hit anyone. That combined with the fact that most shops seemed to be shut gives the distinct impression of a small country town. However, from the outside looking in it seems as if this quaint serene atmosphere is not the result of a laid-back country lifestyle but rather the result of economic damage done by the end of the boom.

What is most distressing is the number of empty shops and buildings that litter the CBD. The inevitable question I always have is how the hell did this happen given the staggering amounts of wealth that flowed into the state during the boom. Leaving aside the incompetence of politicians who have for generations had a habit of giving away our natural resources to a select handful of friends or foreign interests.  And the tendency of mine workers to invest in quality assets such as tattoos, jet skis, utes, prostitutes and anything that could go up their nose. It still seems amazing that there appears to be nothing left.

It seems that making money is often much easier than keeping it. Part of the problem that seems to afflict both governments and individuals is that they have an inability to move beyond their current narrow view of where they are in the cycle of their earnings. Most seem to suffer from recency bias where they assume that tomorrow will be like today because today is like yesterday. There doesn’t seem to be an ability to consider that there have been an infinite number of yesterdays, each with a different tone and character. But more importantly each one had a different lesson to teach those who cared to listen. It is clear that no one ever thought that the party would end despite the universal law that all booms end in busts. Once again, a memo that many didn’t seem to get. There was clearly no plan either collectively or individually as to what to do when the good times ended. It is this lack of an understanding of history combined with the lack of a plan that had any form of fluidity to it that is central to the loss of wealth from WA.

The lessons here for traders are manifest with the central theme being having a plan and an understanding of history. Part of my perverse joy at watching the Bitcoin bubble was that its participants didn’t seem to understand that we had seen it all before. It doesn’t matter that something is new to you – it will not be new to someone else and they will have a plan to deal with this. Granted experience is hard won but only an idiot would think that the weather would be the same till the end of time. Likewise, only an idiot would believe that the current investment conditions will last forever. Markets don’t change but market conditions do, they move from stagnation to boom to bust, rinse and repeat infinitely.

Money can do many things for us if we understand our relationship with it and the transient nature of it if we make mistakes. I have known many an individual who has squandered a fortune either inherited or earned simply through not understanding how to hang on to it. Money is a functional too and I have found that viewing it as such can short circuit a lot of self-destructive behaviours. It also helps to be a student of history and to understand that there is nothing new.