Historical Resources — Investor Amnesia

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For those of us that enjoy history, there is nothing quite like reading through the thoughts and work of our predecessors in earlier centuries. I don’t know why I find it so interesting – maybe because it makes the past seem more ‘real’, rather than a distant world – but I really enjoy the idea of investors just like you and me in the 18th or 19th centuries sitting down to write about the markets like we do today.

While the specific topics and writing styles are different, the emotions and behaviors are not.

If one takes the time to read through these primary sources, every so often you will stumble upon an absolute gem of a story or detail that you would have never found otherwise. I’ve shared many of these gems on Twitter over the last few years, but a very recent finding that I discovered comes from a chapter in an 1874 book discussing the merits of investing based on… the weather.

The Theory of Stock Exchange Speculation (1874)

The List

I share one of these historical sources each week in my Sunday Reads newsletter, but I thought that it was worth sharing just a quick post with a list of all my personal favorite sources in one spot. Beginning in 1688 with a book on behavioral finance, I hope you enjoy this list! (This is a list that will be updated, because I know that Jason Zweig or someone smarter than me will inevitably point out all the incredible sources I’m forgetting)

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1. Confusion de Confusiones (1688)

The First Book to Describe a Stock Exchange | Online Auctions | Sotheby's

What many consider to be the first behavioral finance book, this translation provides an unbelievably interesting look at the Amsterdam stock exchange, and the behavioral biases that plagued investors then and still do today.

2. Every Man His Own Broker (1769)

This book was one of the first popularized guides to investing in 18th century England. This is how the Financial Times described the book:

“It educates and flatters the reader at the same time, says the Finders Guide, offering the promise that a ‘secret world will be laid out for the reader. All they have to do is buy the book’.”

3. Chronicles and Characters of the Stock Exchange (1850)

4. Facts, Failures, and Frauds (1859)

A 19th century account of financial fraud and business failures that reads as relevant today as it did back then. Consider the first page of Chapter 1:

“Without any great violence, all the incentives to commercial crime may be brought under the one common rubric — the desire to make money easily and in a hurry.

The apprentice-boy, who robs the till of a few shillings in order that he may enjoy himself on a particular evening; the gigantic forger or swindler, who absorbs thousands that he may outshine the people who live and breathe around him, are so far in the same predicament that they cannot endure any delay to the gratification of this common passion.

Apart from these, but still actuated by the same desire, is the reckless speculator, who would risk everything in the hope of a sudden gain, rather than toil safely and laboriously for a distant reward. The speculator may, of course, be a perfectly honourable man, who would instinctively shrink from any deed that would invoke the interference of the criminal law; but if for time is adverse, he is on the high road to wrong-doing, and, moreover, there are many crimes not enumerated in the statute-book that are still heavy sins against the dictates of morality.”

5. A Handy Guide to Safe Investments (1860)

 

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6. Speculative Notes (1864)

The source material for my recent post on Rubbish Rallies.

7. A Guide to Profitable Speculation in Wall Street (1874)

8. The Rationale of Market Fluctuations (1876)

 

9. The Causes Influencing Investment & Speculation & the Fluctuations in Values (1885)

While you should peruse the entire book and find a section that sounds interesting to you, I would highly encourage you to read this section on The Speculator vs. The Investor .

10. The Cycles of Speculation (1907)

 

11. Psychology of the Stock Market (1912)

Despite all the facts, figures, and statistics… so much of the stock market comes down to human behavior. As my boss, Jim O’Shaughnessy likes to say, “human nature is the last arbitrage.”  I recommend reading the table of contents, and reading the section that sounds most interesting to you. These primary sources, more than 100 years old, are an absolute treasure trove of insights and passages. Trust me, and take the time to read this:

‘MOST experienced professional traders in the stock market will readily admit that the minor fluctuations, amounting to perhaps five or ten dollars a share in the active speculative issues, are chiefly psychological. They result from varying attitudes of the public mind, or, more strictly, from the mental attitudes of those persons who are interested in the market at the time.’

My recommendations:

12. Simple Principles of Investment (1919)

Written in 1919, this is probably the world’s most straightforward book on how to invest. While complexity can seem more sophisticated, this author covers the most basic of investment principles, with chapters like:

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Couldn’t get much simpler!

13. Successful Stock Speculation (1922)

 

14. Common Stocks As Long Term Investments (1925)

A standout book in the history of financial literature, Common Stocks As Long Term Investments was an incredibly popular book when it was published. The book reads similarly to The Intelligent Investor , and is heavily focused on the benefits of diversification. The author, Edgar Lawrence Smith, argues:

‘Sound investment management, while always subject to error, cannot fail to improve average investment results if the principle of diversification is strictly adhered to.’

The book also provides readers with The Principal Functions of Investment Management:

  1. “It will first establish a sound investment plan suitable to the purposes of the investor.
  2. It will then determine what proportion of the fund under its management shall be in equities and what proportion in bonds under current industrial and economic conditions.
  3. It will put itself in a position to watch for changes in conditions and be prepared to modify these proportions in harmony with such changes.
  4. It will study the current conditions of various industries and groups of industries, and will select as its field a diversification of those which upon reliable data may be regarded as the more promising.
  5. It will then examine the management and financial structure of the leading companies in these industries.
  6. It will watch for changes both in the conditions of industries and of individual corporations and be prepared to change the investment to accord with sound analysis of the latest available information.
  7. It will retain diversification as its fundamental principle, but will establish reasonable limitations to diversification in order not to dilute the quality of management applied.”

15. 75 Years of American Finance: A Graphic Presentation 1861-1935

 

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Jamie Catherwood
My name is Jamie Catherwood, and I’m a Client Portfolio Associate at O’Shaughnessy Asset Management. Get your financial history fix through reading my articles, or those that I link to in my weekly “Financial History: Sunday Reads”.
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