The House of Rothschild for many reasons is in the news and one of the most famous reasons is it relied on quick information to gain great wealth after Wellington beat Napoleon at the Battle of Waterloo. The myth and the facts have intertwined for many years and many believe if only they could have inside information, they would be able to capitalize on the markets. The reality is always a little different, the facts are many years the Rothschild were bankers to governments. Prior to the 5 brothers setting up in different cities of Europe, when governments paid their debts they often moved physical gold from one place to another – there was a risk of that. The Rothschild changed the movement to a piece of paper which lowered the risk of gold movement – they just needed a very good and protected safekeeping system. Along the way, the family lent money to governments or where bankers to governments – every time there was a war – somebody had to pay for the war. Governments came to Rothschild and other bankers to receive loans – sometimes they paid back, sometimes they did not. When they were in debt too much, similar to most people you curse your bankers. However as times improve and money is paid back, then you banker is your friend.

In the movie the House of Rothschild made in 1934, there is a scene where Napoleon who came back for the second time was winning wars against much of Europe. In battles against Wellington and the English he was winning. The news from the battle ground was Napoleon was winning which meant there were more sellers than buyers of English gilts or bonds. Rothschild was buying. The war went on for weeks with Napoleon having the advantage  and Nathan Rothschild was using the resources of his bank to support the English gilt. When the battle turned, Nathan received word prior to the general public Wellington had won, this news sent up the English gilt to par and slightly above 100 where under normal conditions  the price would have been in the first place, the effect was to make Nathan the richest person in the world.  The myth is insider information, the reality is Nathan bought most of his position prior to receiving the news. When Nathan received the news he did not double down or triple down for he already held a very large position and he did not have the credit to but was relieved and financially saved.

If you use a modern example – the Big Short by Michael Lewis large amounts of money was made by a few firms shorting the price of mortgage backed securities (expecting the price to fall) For months, the few firms kept increasing its position, when prices fell large profits were made. The stress for the firms was when would the price fall in line with the firms thinking because on the other side of the trade the rest of the street and the world bond traders believed the bonds were safe investments.

Linking to dividend paying stocks, the reason the system works over time is your position of holding profitable companies increases overtime. Profitable companies invariably split their shares and they increase in value. The dividends which kept coming in become larger and overtime the position increases. When the price decreases you buy more, as the price increases you will be wealthier. The trick is to ensure you invest in a profitable stock that will be in business for many years. The myth of insider trading said because the solution was relatively simple, but complex and those that buy large positions before material changes are announced will be investigated and sometimes charged.

There are more questions than answers, till the next time – to raising questions.