The Best Investment You Can Make
At their core, all investment opportunities can be evaluated based on the risk of losing your original capital and the potential return of the investment. That risk/reward spectrum looks like this:
The greater the risk, the greater the potential reward. Different asset classes have different risk/reward profiles. Bonds aren’t risky but necessarily offer little reward. Equities can deliver greater returns, but the risk is greater as well. Within equity there are different strategies with various risk/reward profiles. For example, an index that tracks the S&P 500 will deliver consistent, modest returns whereas an actively managed fund may be able to deliver greater returns, but with higher volatility.
These types of investments all fall neatly along the risk/reward trendline. Venture investment likewise has a traditional risk/reward profile in that risk matches reward but is unique in being particularly rewarding and particularly risky.
I’ll use venture capital as the benchmark against which I’ll measure the best investment in the world because readers on medium.com will likely be most familiar with entrepreneurship and venture capital.
Venture capitalists invest in startups, and although the risk of failure is high for startups (90% is the often quoted figure), if you pick one or two big winners, you’ll make a ton of money and maybe you’ll even get to hold hands with Donald Trump like early Facebook investor, Peter Thiel.
That sounds pretty great so let’s look at the numbers when it comes to an investment in a startup:
- Risk: The classic rule of thumb is that 10% of a VC’s investments will deliver all of their returns. Though actual academic research gives the VCs slightly better odds, the lack of good data on the subject makes them rough guesses at best. Let’s stick with the idea that 90% of venture backed startups fail to deliver significant returns.
- Reward: Determining the possible reward to a VC is also a bit difficult. Let’s say that your fund invests in the next Uber, a company worth, supposedly, $66 billion. That’s a big pie and a phenomenal return no matter the size of your fund’s slice. If you’re one of the top VCs of the decade and you were on Facebook’s cap table at their IPO, you’ll walk away with a few billion dollars.
So, venture capital is high risk and high reward. The failure rate is 90% but you could walk away with a few billion dollars. Not bad. But what if there were an investment in the green part on the right of the risk/reward trendline? What if there were an investment where the reward vastly exceeded risk? Well, it would certainly be the best investment in the world.
What is this investment?
A coup d’état
A coup d’état is the undemocratic seizure of power through the carefully applied use of force which gains control of the apparatus of the state. Edward Luttwak in his fantastic book, Coup d’état: A Practical Handbook, provides this working definition:
A coup consists of the infiltration of a small but critical segment of the state apparatus, which is then used to displace the government from its control in the remainder.
Coups occur all the time for various reasons, often ideological. The typical planners of a coup would be political enemies of the extant regime looking to gain control, but as an investor looking for a financial return, you don’t care about politics — you just want to find an unstable, resource rich nation whose oil or other national treasures you could seize for yourself.
The idea is that, with an investment of a few million dollars for guns, mercenaries, and other supplies, a private investor could seize power in a proverbial banana republic, taking control of the nation’s vast resources for themselves.
“Knocking off a bank or an armored truck,” he said, “is merely crude. Knocking off an entire republic has, I feel, a certain style.”
-Frederick Forsyth, “The Dogs of War”, 1974
Before you go buying guns and hiring mercenaries, let’s take a look at the risk/reward profile of this investment so you have an idea of what you’re getting yourself into.
Reward
For much of recent history, Bill Gates was not the richest man in the world. That title was (probably) held by Muammar Gaddafi, the late dictator of Libya who is reported to have had a net worth of $200 billion when he was killed by rebels during the Libyan Civil War. If your coup is successful, your net worth will be in the hundreds of billions, because, when you’re a dictator, your country’s GDP is your net worth.
Risk
If venture capital offers a reward of a few billion dollars and a failure rate of 90%, one would assume that the failure rate of coups, given that the reward is nearly one hundred times that of the reward of venture investments, would be approaching 100%. That’s not the case, and it’s why a coup is the best investment anyone can make — it’s an investment that doesn’t conform to the traditional risk/reward trade off. Since the Cold War, the success rates of coups is greater than the success rates for startups with 40% of coups succeeding in comparison to a 10% success rate for startups.
So if you were to attempt a coup, you would need a few hundred thousand or a few million dollars, as opposed to the billions of dollars invested into startups like Uber. You would have a 40% chance of success rather than a 10% chance in the case of a startup. And, if successful, your personal reward would be in the hundreds of billions. And I know what you’re thinking: “if it’s really such a great investment, why hasn’t anyone tried it?” Well, actually:
This has been done before
In 2004, a group of investors including Sir Mark Thatcher (the son of former UK Prime Minister Margaret Thatcher), Ely Calil (a Lebanese billionaire), and other rich Europeans with business and political ties financed and planned a coup to remove President Teodoro Obiang from power in Equatorial Guinea and replace him with an exiled political opponent who had promised to give the group oil rights in return. The plot was foiled when their plane, a charted Boeing 727, was impounded in Zimbabwe and its 64 passengers, mercenaries hired by the investors, were arrested.
The plot is known as the Wonga Coup because, when Simon Mann, the main plotter, was arrested, he wrote to his wife that, “it may be that getting [them] out [of prison] comes down to a large splodge of wonga.” Wonga is British slang for cash.
I would give all that I have to get to read the prospectus for the coup. Another anecdote that I love from the unsuccessful excursion was that, when Mann’s lawyers tried to contact two of the investors, Mark Thatcher and Ely Calil, the two “asked them to ring back after the Grand Prix race was over.”
In the letter that Mann wrote to his wife, as though he knew that one day I would write this piece, he also said:
Of course investors did not think this would happen [that the plan would fail]. Do they think they can be part of something like this with only upside potential — no hardship or risk of this going wrong?
The investors were right to view the coup as an investment with limited downside potential. Despite the plan failing as spectacularly as any such plan could, only the mercenaries and plotter spent time in jail. They lost their principle and had to pay modest fines, but otherwise the investors faced no consequences.
Don’t let the failure of the Wonga Coup deter you. They made a lot of mistakes in the planning of the coup; it was practically an open secret, having been discussed openly at an energy industry conference a month prior to the arrests. You could learn from their mistakes and play the odds yourself. Perhaps with an investment of a few hundred thousand dollars and some soldiers-for-hire, you could become a dictator worth hundreds of billions of dollars.
Or you could stick to stocks and bonds.
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