Laying Away for a Rainy Day
The Alpha Strategy, by John A. Pugsley, Costa Mesa, Calif.: Common Sense Press, 1980, 242 pp., $14.95.
Some people might think that John Pugsley had had a little too much wine when he wrote The Alpha Strategy. (After all, he recommends wine as the "perfect asset" on page 176.) What?! Bonds, stocks, collectibles, and real estate constitute the "most speculative and dangerous investment markets in the history of the country." This book will never be popular among brokers and dealers!
But Pugsley's thesis should be weighed carefully by the sage investor. "The alpha strategy," he says, provides a way to "beat inflation, avoid taxes on gains, eliminate the risks of fluctuating markets, and insure yourself against recession and shortages." Simply put, the strategy is to become a stockpiler of essential consumer products, barter items, tools, and skills and knowledge in one's business. And the reverse: Keep your money out of income- producing real estate, out of the wily stock market, out of collectibles and other investments that can't be personally consumed or bartered.
Pugsley even sounds a warning to the hard-money survivalists who have hoarded "survival" coins (pre-1965 "junk" silver). Survival coins won't circulate as barter items, he asserts, because the government is likely to impose restrictions and may even confiscate gold again, and "violent price gyrations" will discourage public acceptance of silver coins.
Pugsley's program consists of stockpiling 20 years' worth of tools, spare auto parts, dehydrated and freeze-dried food, clothing, cleaning supplies, health and beauty aids, fuel, etc. (A complete list of items is found on pages 233-38.) When you ultimately consume these products, you'll have paid yesterday's prices instead of today's. Stockpiling turns out to be the "ultimate hedge" against an uncertain future.
There are problems with the "alpha strategy," of course. Many products can't be stored indefinitely because they spoil, become technologically obsolete, or go out of style. Many items are bulky. All or part of your cache may be stolen, burned in a fire, or destroyed by hurricane, earthquake, or flood. Fortunately, Pugsley doesn't ignore these disadvantages, and he offers solutions.
No, John Pugsley has not written a book in support of junk collectors. He's sounded a much-needed warning to those of us who have become highly dependent on the specialized, industrial complex. Today's society, which Pugsley calls "the world's greatest carnival," consists of welfare, theft, and contrived consumption. It cannot last. Pugsley's prophetic warning is clear and convincing: insulate yourself now before the economy collapses around you in hyperinflation, depression, and chaos. The whole purpose of investing is to be able to buy consumer goods. Start buying now, while you still can!
But even John Pugsley finds it difficult to withdraw his money completely from the sophisticated markets. As an alternative to buying gold and silver, he recommends the purchase of long-term commodity futures contracts in copper, zinc, lead, tin, nickel, and aluminum. Such advice is strictly for high-income investors. Pugsley's low-risk futures ploy is simple: buy far-away contracts in commodities selling close to their costs. Inflation is bound to push prices higher eventually.
But doesn't this approach diverge, both philosophically and pragmatically, from the tone of The Alpha Strategy? Why shouldn't the investor take advantage of other low-risk ways to beat inflation in the stock market or real estate? Pugsley rejects the notion that high, above-average returns can be made in the long run using fundamental or technical analysis, but I find his arguments unconvincing. Yes, it's true that studies demonstrate that "past prices show no relationship to future prices," but such studies can't negate the fact that thousands have made spectacular profits in the short term. Why shouldn't the shrewd investor speculate in real estate, stocks and bonds, and collectibles, as well as the futures market?
But you can't fault John Pugsley for the major thrust of his new book. Stockpiling will give you peace of mind. Those who don't follow his advice will be sorry—and will pay dearly.
Mark Skousen is a financial consultant, author of several books on investing, and the former editor of Personal Finance.