Constants and Change: Why you shouldn’t Ask Historians for Advice on the Stock Market.

Some time ago, a friend asked me, which themes and issues I — as a historian — see most significant in the near future.

We were then talking about investments and stock markets. Long term financial sustainability.

I then remembered a podcast by the U.S. think tank Council on Foreign Relations, where the author, a political scientist, elaborated on various issues that, due to their global character, would of major significance in the near future:

Climate change, epidemic diseases, terrorism, water, cyber security etc.

In retrospect, I feel bad for citing this answer.

Not only did it require minimal intelectual work from my part — I just repeated what speaker told me some time before —, I didn’t honestly answer his question, either.

He wanted my opinion as a historian. I did barely better than sending him a link to the podcast.

While I still have no own answer to his question, I can give you some reasons why a historian makes a bad advisor when it comes to stock market investments. Thats short-, mid-, or long-term if we keep in business slang vocabulary.

Short-term — for a historian that is years or decades — I would say, look for consistencies, meaning developments that go beyond presumed breaks and paradigm shifts.

Take the stock market crash in 1929. It didn’t mark the assent of German national socialism or the decent into another world war. It influenced both, but was based on a global development and had global consequences that went beyond Black Friday in both directions on the time axis.

If you were heavily invested into the stock marked, this assessment probably didn’t help you much. Not in 1929, nor in 2008. You just lost your money and some academic observing the (re-) emergence of populist politics cashing in on the consumers’ dissatisfaction does not bring your cash back.

What about long term then?

Say you want to make sure you can retire comfortably and give your (grand-)children the opportunity of higher education.

Well, if you are looking to secure your far future offsprings tuition fees, invest in change.

Buy shorts (although I’m never quite sure if I understand these correctly), bet on bankruptcies, expect major wars, and reorganisations of the the global geopolitical order.

Historically speaking (that is long-term in this case), things that you can invest in on the stock market don’t last very long.

Name three companies that were founded over a hundred years ago. Okay, well, two hundred now — think about your descendant who wants to go to college from the example above.

Didn’t think so.
(Some examples below)

Also, I personally think humanity still can’t look beyond the three generation horizon. We care about our grandchildren. Everything beyond — sadly — is not our problem.

So what about investing into more general ideas?

Progress? Modernity? Globalisation?

Well I got news for you. Historians started to contemplate if these concepts are cyclic, too (Osterhammel 2017).

Was that good advice?

I think it was an interesting discussion, but I probably won’t yield much dividends, at least financially.

Long story short, don’t trust a historian with your money.

 

 

 

 

 

 

 

  1. Bank of England (1695)
  2. Vacheron Constantin (Swiss watchmaker, 1755)
  3. Kongō Gumi Co., Ltd. (Japanese construction company founded in 578 and bought up in 2006; so close…)
    All curtesy of google.

 

 

Image: https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

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