Everything Old Is New Again

Steve Jobs: goldbug, investment guru?

In 1979, the stock market had gone sideways for a decade, the Middle East was boiling over, oil prices were through the roof, there was a meltdown at the Three Mile Island nuclear reactor, and investors were flocking to precious metals as a safe haven against rampant inflation. The world, it seemed, was ending. It was in this environment that Steve Jobs scored an appointment as a trustee at Grinnell College, a small liberal arts college with a legendarily large endowment.

According to Schroeder, who cites an interview with Grinnell professor emeritus and board member Wally Walker, Jobs tried to persuade the board to dump all its stocks and put its money into gold.

Schroeder reports (and the endowment's stellar performance confirms) that the college, which also counted Warren Buffett among its trustees, ignored Jobs' advice entirely. But what would've happened if they hadn't? Let's do some counter-factual history.

If you're familiar with what gold did in 1980 you already know where this is going.  Gold is somewhere between flat and a third down in inflation-adjusted terms since then; stocks are 3.5 times up.

First, the anecdote reiterates just how hard it is to get large macroeconomic bets right. It's one thing to make a big macro call—especially about inflation or deflation, as Jobs tried to do—and it's yet another to put on the right trade at the right time in order to profit from the call. Buffett and Munger are always at pains to emphasize that they stay away from macro bets for entirely this reason. They're just too hard. Soros can do them consistently, but everyone else's record with them is spotty, at best.

My second takeaway from this anecdote is that it jives with my own experience of being around entrepreneurs (especially product people), traders, and investment professionals—entrepreneurs and people who run money for a living seem to have two different sets of traits. Entrepreneurs make big, all-in bets, and they soldier on through the rough patches fueled by a mix of optimism, vanity, and a rock-solid conviction that they're right about this idea and everyone else is wrong. For a short- or medium-term trader, such traits are deadly—you can't bet everything on one big trade, you need some sort of sell discipline, and you generally don't want to fight the tape. But fighting the tape is exactly what serial entrepreneurs and successful product execs like Jobs make a career of doing.

Warren Buffet is not, alas, a trustee of the Texas Higher Educational Endowment, a third of which belongs to my alma mater, Texas A&M.  Hence they're in for a billion.