The Investment Scientist

The Most Important Investment Idea I Learned at Oxford

Posted on: November 29, 2020

Some of you know that I went back to school in 2019. Specifically, I was accepted into the EMBA program at Oxford University Said Business School. The program was interrupted by the pandemic in April when I still had about a quarter of classes to finish, so I postponed it for a year. Now 2020 is coming to a close and the Dow has recovered all its losses. It’s a good time to reflect on how my studies there changed the way I invest. 

The most important thing I learned is about how central banking works, specifically how money is created. I came to understand that terms like “central bank balance sheet expansion”, “central bank asset purchases”, “quantitative easing” all mean one thing: printing money. I also came to understand that the amount of money the Fed releases into the economy to a large extent really determines asset prices. This understanding helped me make the right call during the stock market panic in March and April. 

At that time, the Fed signaled to the market that it would do what it took to support the market: that is, print unlimited money. And indeed later we learned that the Fed had injected 3 trillion dollars into the economy, a whopping 75% increase in money supply from the pre-pandemic level. I rightly deduced then the market crash would be temporary, since once the Fed spigot was opened, rising water would ultimately lift all boats. I have since paid far closer attention to Fed reports and minutes than I did before.

Learning is truly a lifetime endeavor, it’s never too late to learn. 

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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