The history you do not know …

One of the ex-Presidents of the United States, Harry Truman is believed to have said, “The only thing new in the world is the history you do not know.”

I was reminded of this while talking to someone. When I asked a question, he responded stating that, such a thing has never happened. What he left unsaid was, ” … hence it is not going to happen”.

There are two important issues with such line of thinking.

  1. While talking about history, we often forget that what has not happened so far can still happen some time in future.
  2. The history one is talking about has limitations. It is either the recorded history or the one that one has read about or seen. This is what reminded of Harry Truman’s statement.

There is almost nothing new, except that part of history that we have not read. This is especially true in things involving human nature and human mind. Some things do not change. These include our basic instincts and emotions.

Read as much as possible about the history.

Investment is closely related to how one behaves rather than which is the best investment option or whether the timing is correct. If human emotions have not changed over the millennia, it makes life easy – just read.

This is exactly the purpose why I read many books on investment history and wrote “Riding The Roller Coaster – Lessons from financial markets we repeatedly forget”.

#RidingTheRollerCoaster

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Testimonial from Mr. Mukesh Dedhia

Mr. Mukesh Dedhia, a reputed figure in the financial services industry has this to say about the book:

“A singular book that gives information on all the past market highs and crashes, the human biases that lead to extravaganzas and how mental stability helps you protect these roller coaster rides.”

Thank you Mukeshbhai for posting this review on http://www.amazon.in

#RidingTheRollerCoaster

What goes up …

Sooner or later – often sooner than anyone expects – what has gone up will come down. Likewise, whatever has gone down will rise again, typically when the experts least expect it.

  • From the introduction to the book “The Devil’s Financial Dictionary” by Jason Zweig

 

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The financial past – rhymes

The financial past doesn’t repeat itself exactly, but it rhymes. Human nature never changes, no matter how vociferously someone tries to tell you that this time is different. Fads come and go, but fees are forever. On Wall Street, everything has been tried before. Whatever it is, it will almost certainly turn out the same this time as last time.

  • From the introduction to the book “The Devil’s Financial Dictionary” by Jason Zweig

 

#RidingTheRollerCoaster – 250

Pillar two: History of financial markets

William Bernstein wrote a classic “Four Pillars of Investing”. It is a must read for any student of investments.

In the chapter “Introduction”, he writes that the second pillar of investing is knowledge of history. He writes:

… a study of previous manias and crashed will give you at least a fighting chance of recognising when asset prices have become absurdly expensive and risky and hewn they have become too depressed and cheap to pass up.

… the investor who is unaware of financial history is irretrievably handicapped.

Those who are interested in removing this handicap cannot ignore studying the history.

And this is what I have written in the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”:

In the beginning, all the events looked different. In spite of the apparent differences between the origins, as discussed above, there were too many common threads and parallels. It was hard to ignore the signals and still the world ignored ouches to ignore them. And that  confirms to what Bishop Desmond Tutu or Jeremy Grantham said. Remember the golden words of Sir John Templeton, “The four most dangerous words in investing are: ‘this time it’s different.'”

Ignore the history at your peril. Learn the lessons and remember those. If required, re-read the book.

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“A book for keeps” says Deepali Sen

Amit Trivedi: absolutely enjoyed reading ‪#‎ridingtherollercoaster‬.
Greed and fear, the key drivers of our investing mistakes. And yes, we need to read and re read it to learn from history.
The examples on financial disasters chosen by you are over different geographies and time periods- the message is same, “too good to be true”.
Well written and insightful.
The book is certainly for keeps. Congratulations Amit.

 

When genius failed …

Two days ago, we wrote a post referring to an article titled, “The world’s smartest investors have failed …

There are numerous instances when the experts, the smartest in their respective fields, the best in the business, the genius have failed. Failure happens. When, where, how, why – these are questions that often have no answers. However, in certain cases, the answer to the “why” lies in one’s overconfidence, ego, refusal to learn – it’s all in the mind.

Just as a reminder, we have borrowed the title of today’s post from a book by the same name, written by Roger Lowenstein, highlighting how a team of the best in the business failed at their own game. It is a compelling story of a very large investment fund – Long Term Capital Management. Managed by Nobel Laureates, the fund could not live up to its name even and did not survive the “long term”. In “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”, we have a chapter on this episode.

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