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Freedom, rough patches and the five Bs

There is an iron law of capital. It states that capital goes where it is welcome and well treated. Capital is not just bucks, but businesses, brains, bodies, and blueprints; the five Bs. They too go where they are welcome and well treated.

Freedom, prosperity and the five Bs are interlinked. It’s all for nothing if you don’t have freedom. The freest are best off. If the government allows the market to do the “right” things, but not what it deems the “wrong” things, it is the government who makes the allocation decisions. When this happens, Santayana’s those-who-do-not-learn-from-history-are-doomed truism applies.

Some folks are wise, and some are otherwise. Fools are condemned to repeat mistakes from the past. Investors can use this in a sense that failure is somewhat predictable before the fools have unleashed their full potential.

Trends and mean reversion are powerful concepts in history and well applicable to the field of finance. An extended period of economic bliss can be followed by a period of despair.

Freedom is an option. Imprisonment is the removal of options. If this is true, then interventionism is punishment, or, in its most aggressive form, suicide. As investors we need to spot the removal of options. We need to know whether Cubans are risking their lives to get to Florida, or Floridians are risking their lives to get to Cuba.

Freedom is the most important thing. Killing golden geese is borderline-suicidal. Money won’t create success, the freedom to make it will. Prosperity won’t create happiness, the free pursuit of it will. Repression won’t create misery, the lack of options will.

Paraphrasing Aristotle, the aim of the wise is not to secure profits, but to avoid losses. Governmental folly can make the avoiding of negative compounding more difficult. Failed governments have various options to reverse their folly at your expense. You are short those options.