During the last weekend, I spent some hours watching the webcast of the annual investors’ conference of Bestinver, a Spanish investment fund.
I find the conference itself not only entertaining and informative but quite funny due to the way the fund managers show their value investing principles and how stubborn they’re with them (luckily for investors). The experience is comparable to that of Berkshire Hathaway annual general meeting.
As in previous years the managers defended how not only to have profits but to defend your savings during recessions it is much better to be invested in real assets than to have your money in cash, state bonds, etc.
This time they raised the case of Mexico during 1979-1988 (in previous cases they had referred to the Weimar Republic or Argentina), based on an analysis by Marc Faber (a presentation containing the same info can be retrieved here, PDF 4.8MB). During those years the Mexican peso suffered an extreme hyperinflation explained in the Wikipedia as follows:
In spite of the Oil Crisis of the late 1970s (Mexico is a producer and exporter), and due to excessive social spending, Mexico defaulted on its external debt in 1982. As a result, the country suffered a severe case of capital flight and several years of hyperinflation and peso devaluation. On 1 January 1993, Mexico created a new currency, the nuevo peso (“new peso”, or MXN), which chopped 3 zeros off the old peso, an inflation rate of 10,000% over the several years of the crisis. (One new peso was equal to 1000 of the obsolete MXP pesos).
Obviously, anyyone who either held savings in cash in pesos or Mexican bonds at that time virtually lost all his money.
However, the same author made the analysis of what would have happened during those years to an individual holding Mexican stock, for which he used the Mexican Stock Exchange Index. The result is that at the end of the decade that person would have kept his wealth in US dollar terms, as the nominal value of the Mexican stocks raised at par with the hyperinflation and peso devaluation going on in the country.
Conclusion: better be invested in assets if only to keep your savings safe in the long run.