You Might Be Surprised…The Long History of Investing Holds Lessons for 21st-Century Investors, and Is Especially Important Given Present Volatility
BOSTON, MA–(Marketwired – Mar 24, 2016) – What are the most important moments in the history of investing?
Deals made in Ancient Greece and Rome hold important lessons for 21st-century investors, especially in today’s volatile markets, say Norton Reamer and Jesse Downing.
Reamer and Downing are the authors of the just-published Investment: A History (Columbia Business School Publishing, February 2016). View a timeline of the history of investing.
There are a few historical moments and events that are especially important for investors today, they say.
- The first pensions in history were land grants given to retired Roman soldiers by the government, to keep them occupied and uninvolved in politics in the Capital. “There is evidence that this system became overextended and that Roman statesmen had a pension dilemma reminiscent of current debates over Social Security and retirement age,” says Reamer, who is the former CEO of Putnam Investments, and the founder and former CEO of United Asset Management.
- Three thousand years ago, in Ancient Greece, if you were an investment manager, you were most likely a servant or a slave. Many landowners delegated the financial management of estates to slaves — and some slaves acted as truly professional managers, assisting multiple masters with their affairs.
- The first recorded distressed turnaround operation was described in the 300s B.C., in Xenophon’s Oeconomicus. Similarly to today’s buyouts managers, an investor purchased problematic properties, implemented changes to improve them, and sold them to new buyers who would not have purchased them before the repair.
- “Society laid prerequisites for the modern financial system in Renaissance Europe — from the 14th to the 16th century,” notes Downing, an investment professional in Boston. Developments included the rise of merchant banks, double-entry bookkeeping, and commercial fairs — early versions of current investment markets.most of the time failure is not caused by a complex technical error, but by a new flavor of poor judgment and emotional reactio
- “The financial system we know today began to take shape in the 16th century,” says Reamer. “Three elements laid the groundwork: joint-stock companies, public markets, and the Industrial Revolution.”
- The U.S. government’s reforms in the decades since the Great Depression served to promote the economic well-being of citizens and to democratize the investment process. “We still have work to do, but we’ve learned a great deal about managing economic crises since the 1920s and ’30s,” adds Downing.
- A. W. Jones was the creator of the first hedge fund, which he opened in 1949 with the 20% performance fee structure we know today. His inspiration was the 20% fee charged by ship captains in Ancient Phoenicia, who took a cut of the profit from successful voyages.
- It was only under William Cary, the SEC Chairman appointed by President Kennedy, that insider trading came to be cracked down upon — the year was 1961. “This development was a major landmark against unfair financial dealings and, therefore, in the democratization of investing,” adds Downing.
- The development of index funds and ETFs, starting in the 1970s, offered a simple, low-fee investment opportunity. “These funds embody democratization by permitting even small investors to participate with ease in a source of diversified investment gain,” says Reamer.
“Decade after decade, we see markets collapse and fortunes vanish for the same basic reasons — and most of the time failure is not caused by a complex technical error, but by a new flavor of poor judgment and emotional reaction,” says Reamer. “If investors today want to succeed, they must understand the triumphs and cataclysms of yesterday.”
“In order to take advantage of the democratization of investment, people need to be financially literate — and that requires an understanding of investment history,” adds Downing.