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12/09/2005
Will Goetzmann's History

Will Goetzmann is a Yale scholar (currently on leave for a year at Harvard Business School) who studies the history of markets. Some of the historical references and books on his Web page have timeless lessons. I particularly like the analysis of "The Perils of Wall Street Speculation" based on William Worthington Fowler's 1870 book Ten Years in Wall Street. Goetzmann reports the wary threat to stock market speculators with a link to the cartoon below the caption.  This is similar to the Louis L'Amour story about the gold prospector who risks the whole mountain's falling on him with each blow of his axe that is memorialized in Practical Speculation by Susan Slyman's painting .

"Drive the plow and reap the grain, sail over the sea, sweep the streets even, chose any honest calling, no matter how arduous, anything but speculation. Even if endowed by nature with gifts and favored by fortune, and you rise to be one of the money kings, your name will then only go down among the gigantic but disreputable shadows which flit through the traditionary landscape of Wall Street."

Goetzmann comments, "Don't take the threat seriously. Our culture has always had a love-hate relationship with finance. The same people who depend upon professional investors for their future well being at the same time decry money managers for not doing real work. If you go into finance, you will have to live with this cultural duality."

I feel that quantification of the degree of acceptance of the sentiment that investing in the stock market is likely to end in disaster is one of the best indicators of future return. Whenever all my relatives call to ask whether they should get out of the market, and all my readers send me hate mail because the market went down and I said something bullish in the last few months, or whenever the academics write books or articles saying that one should disregard the returns of the 20th century reported by the Triumphal Trio and realize that there were periods when you actually could have lost money in the market, and they are imminent and relevant now, so get out, why then I know that it's even a better time than usual to reach for the canes.

Such fear can be quantified even more readily by runs of declines of parts of the day as suggested by Goetzmann's poignant non-quantitative take on "Three Days after Black Monday: The Crash of 1987."

After reading the erudite, sharp and practical historical vignettes and analyses of Goetzmann, including references to many of the books that only I have in my library, and learning that he is teaching, indeed heading an important center at Yale, I  wondered we be so nearby yet not be in close contact. Then I realized that the lecture I gave at his class with Laurel and Liz Callaway, the article he wrote about my tally sticks, and the many times that he has been at my house for historical research must be augmented imminently.

Jim Sogi adds:

Look at some of the great company names from Dr. Goetzmann's NYSE data reflecting the technology of two centuries ago: rail, coal, canal. As Dr. Fitzsimmons described, the technology of the 1800s and the industrial revolution were more revolutionary and disruptive than current developments, and impacted life even more than current technological wonders. It is a primacy/recency phenomenon that gives us the illusion of the importance of recent inventions. You want some real out-of-sample data to crunch? You want revolutionary disruptive technology? Look to the 19th century:

Many prices above $100. If you had to settle trades in paper certificates, you would want as few positions as possible.

 

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