I am away from the office and not there to enjoy the return of the financial asset melt up. I am not going to bother trying to comment on this move higher. Instead I am going to take a moment to talk about a trade from more than 40 years ago.
Right around the time I was born, Norway made a wonderful discovery in the waters off their coast.
Modern Norwegian Transport</a> </div>
Deep below the surface of the water lay an abundant massive reservoir of energy. New technologies with off shore drilling had made the unearthing possible. Suddenly, overnight, Norway’s economic fortunes skyrocketed higher. They were going to be rich with the gift that had been left in their waters.
Being a sensible practical people, the Norwegians smartly set up a long term fund to save the “gift”. The Petroleum Fund of Norway was established to save the surplus wealth. Although the Norwegians did not suddenly all drive gold plated Ferraris, there was still a massive boom in their economy as the energy industry was developed.
Many personal fortunes were made as this enormous wealth found its way into the economy. Today, Sweden’s neighbour enjoys a GDP per person of approximately $42,000. Norway, which is a very similar country except for their energy reserves has a GDP per person which is 33% higher at $56,000.
In the early 1970s as the enormity of energy resource became clear, many individuals and companies tried to capitalize on it. Instantly, other offshore properties were bid higher on the hopes of repeating that success. Companies rushed to compete to supply the equipment to develop the energy. Like many booms, there was a very swift move higher in prices as the market adjusted for the new information.
Which brings me to one of my favourite stories. I can’t remember who told me this story, and I can’t seem to figure out how to google it either to confirm that it is true. Nonetheless, I am going to tell it anyway as the moral of the story is important for traders.
As capital flowed into Norway, prices for all the assets associated with the development of offshore energy moved higher. There were many investors that were trying to capitalize on this discovery.
I have often repeated the saying, “when everyone knows something, no one knows anything.” No one held any special insight into the information about Norway’s oil find, so fairly quickly the boom was priced at levels that made realizing outsized returns difficult. Yet investors, with dreams in their eyes, plowed into Norway.
But there was this one wise international investor that made a different investment. An investment, that in my mind was pure genius. Instead of trying to compete with the herd, he sat back and thought about the long term implications of the massive Norwegian oil find. He correctly surmised that their economy was going to become much wealthier in the coming years. And when a country has a boom that creates that sort of wealth, the individuals have more money to spend on luxury items.
So this investor, as the boom was unfolding, instead of trying to buy local Norwegian oil companies, he started accumulating a massive position in Norwegian art. He bought everything he could. Hand over fist, he lifted offers. The Norwegian art galleries couldn’t believe their good luck at finding this international investor that was gobbling up all their most famous works.
Of course, a few years later, as the wealth from the oil development was looking to get spent by the newly minted Norwegian millionaires (back then a million meant something), the price of art skyrocketed higher. The international investor made a fortune selling back the local art to the Norwegians.
The astute international investor had realized that eventually the money would flow back into the local art market. He had not bothered competing in the obvious trade, but instead gone and figured out the next move. Like a chess grandmaster, he was way ahead of everyone else.