All-weather investing

Seeking good positive returns.

Come rain or shine.

Ruffer provides investment management services for institutions, pension funds, charities, financial planners and individual investors.
Ruffer LLP
Select Location
UK
Europe
Australia
US
Asia
Middle East
Channel Islands
Rest of world
Type of Investor
Individual investors
Institutional
Charity
Family office
Financial planner
Individual investors
Institutional
Charity
Wholesale
Institutional
Institutional
Institutional
All investors
All investors
London
80 Victoria Street
London SW1E 5JL
Edinburgh
31 Charlotte Square
Edinburgh EH2 4ET
Paris
103 boulevard Haussmann
75008 Paris, France

Book review – Engage the enemy more closely

Looking under the stones
Jonathan_Ruffer
Jonathan Ruffer
Chairman

What's the difference between knowledge and wisdom?

Writing as an arrogant nearly 70 year old, my answer is ‘about 40 years’. And which is the more important for investment insight?

The answer is that these two elements need to fuse in a chemical reaction to produce an effective investment strategy – covet wisdom, and you have time on your side; covet knowledge, and you have facts on your side. It is, of course, the luck of the draw as to which one is the winner on Wednesday.

These thoughts make me think of the redoubtable historian Correlli Barnett. It is perhaps stretching a point to turn to the blowing up of HMS Hood to get a handle on Tesla. But the best investment call I’ve ever heard about was from an old stockbroker with whom I worked in the early 1970s, who bought Marks & Spencer in June 1940. As he was headed back from the Dunkirk beaches with stukas offering a fond farewell – he worked out that, if Britain won the war, then he’d make a good amount of money, and, if it lost, then he wouldn’t be worrying too much about his investments.

Barnett is always an interesting read – I have recommended to a number of Rufferians his Audit of War which I came across, cut-price, in Cape Town. It was utterly compelling – unread (because unheard of) in the City, yet the cult-read of every ambitious civil servant in the 1980s. It, too, is a book for this moment, explaining that the US injections into Europe to help recapitalise its industry via the Marshall Plan were not so used in the UK, for fear of inflation – UK industry could not cope with the extra demand.

It is the ability to see those things which are going to matter that gives a cruelly unfair advantage to the wise practitioner.

THE CURRENCY OF ANSWERS

Every decade, I re-read Engage the Enemy More Closely, to remind myself how the pivotal decisions in history are made parenthetically, randomly, without any sense that they are the forks in the road which determine which way history moves.

What the book does, quite brilliantly, and without ever quite meaning to (therein lies its power), is to show that knowledge is the currency of answers to questions which turn out not to matter. It is the ability to see those things which are going to matter that gives a cruelly unfair advantage to the wise practitioner.

A LION NOT A CENTIPEDE

Here is the nutshell overview of the narrative. In 1918, Britain had the biggest navy in the world, and, despite the ritual humiliation of leading the German Grand Fleet into Scapa Flow, began to prepare for the next war. It had, literally, ruled the world, but, in the words of Lord Morley of Blackburn, “the British lion is not a centipede – it cannot put its foot down everywhere.” So the decision was made that, come the next conflict, the Pacific was a pond too far, and the Mediterranean, despite its proximity and prestige, was essentially irrelevant to British interests. Britain’s naval power would be needed to keep its interests in world trade afloat.

Thrice wise! By 1941, the Royal Navy was stretched thin, the United States came, in the event, to control the Pacific against the Japanese, and the U-boat campaign came within a single battle of winning the war against Britain. It seemed to make sense in 1922 to snub Japan by not renewing the naval treaty which had just expired; Mussolini’s invasion of Abyssinia in 1935 caused the UK government to humiliate Mussolini, and his newly-created modern navy. These random decisions, which offended the deep policy settled at the end of the First World War, resulted in a centipedic dispersal of the Navy’s strength. They left its Atlantic, African and Arctic routes perilously exposed.

DECISIONS THAT APPEAR UNIMPORTANT

Naval Intelligence lacked the imagination, too, to see that the battleship was not the ne plus ultra of maritime fighting power – it was superseded by aircraft over the high seas, and submarines beneath them. The decision, in 1918, to split the air force into the RAF and the Royal Naval Air Force meant that, when the RAF were bombing Germany, they had no time to repair a 300 mile vacuum where no aerial cover could be given to the convoys.

Barnett’s book is a thundering good read, of course – but the fascination is in the unannounced significance of the pivotal decisions. They almost never looked important – we signed away alliances with the two powers which could have preserved the strategic gameplan. The RAF bombed Germany to show Uncle Joe Stalin that we were doing what we could to help. The County-class cruisers sat high in the water, silhouetted against a skyline in battle, because the Labour government, when the rules were laid down in 1929, thought that no able-seaman should have to stoop on deck.

We have no more idea than they did as to which ones are sound and fury, and which ones simply sound.

The decisions today are as impossible to assess as they were then – and, of course, we have no more idea than they did as to which ones are sound and fury, and which ones simply sound. Is China imploding a big worry? Or is it not imploding a greater worry? Can England survive a break-up with Scotland, or is it a good thing? What about the EU?

Wisdom looks under the stones, and at the precedents. It wonders about the amalgam, in Edward Wilson’s words, of “stone-age emotions, medieval institutions and God- like technology.”

The knowledgeable are boned up on the set speeches of the central bankers, the presidential addresses, the PMI figures (if you don’t know what they are, you might, in the twilight, be mistaken for wise). My money is on the dipsomaniac barrister F E Smith, whose arguments to Lord Justice Darling failed to impress. “Mr Smith, having listened to your views, I am none the wiser.” “No, my Lord, but better informed.”

Ruffer Review 2021
Download our 2021 edition of the Ruffer Review. In it we explore the fate of traditional balanced portfolios, our latest big picture thinking – on regime change and inflation – as well as fresh perspectives on trust, belief and behavioural bias.
Read

This article was first published in The Ruffer Review 2021.

The views expressed in this article are not intended as an offer or solicitation for the purchase or sale of any investment or financial instrument, including interests in any of Ruffer’s funds. The information contained in the article is fact based and does not constitute investment research, investment advice or a personal recommendation, and should not be used as the basis for any investment decision. References to specific securities are included for the purposes of illustration only and should not be construed as a recommendation to buy or sell these securities. This document does not take account of any potential investor’s investment objectives, particular needs or financial situation. This document reflects Ruffer’s opinions at the date of publication only, the opinions are subject to change without notice and Ruffer shall bear no responsibility for the opinions offered. Read the full disclaimer.

our thinking
Ruffer Radio: Winning by not losing – protection strategies
June 2022: Avoiding major drawdowns in markets is key to outperforming over the long-term. It may sound obvious, but in a world of near universal asset vulnerability, it has seldom been more important to stand resolute against falling markets. In this episode, Lauren French and Andrew van Biljon discuss Ruffer's approach to protecting against tail risks in the market and they lift the lid on some of the more creative strategies in the portfolio today.
Audio icon
Nowhere to hide?
May 2022: So far this year, the prices of almost all conventional assets are down. Supposedly diversified portfolios have turned out to be anything but. To preserve their capital, investors will require a new approach to constructing portfolios - flexible, adaptable, robust, and responsive.
Taking back control?
In the late 1970s, the world was on the cusp of radical change. The ‘Deflation Machine’ was being born. Deng Xiaoping began reforming China’s moribund economy. In the West, liberal, free-market ideals were gaining traction, ideals that underpinned the subsequent regime of rapid, disinflationary global growth.
The risk addiction
In the depths of addiction nothing else matters. The pursuit is focused, relentless and uncompromising – dismissive of any potential consequences. So what happens when the addiction is to risk?
OUR THINKING
London
80 Victoria Street
London SW1E 5JL
Edinburgh
31 Charlotte Square
Edinburgh EH2 4ET
Paris
103 boulevard Haussmann
75008 Paris, France