S2E13: Lessons from reading 300 years of stock market advice I Historian James Taylor
What’s the secret behind beating the market? It's a question many ask, but who really knows the answer? James Taylor looks at why, despite the rise of passive investing, so many people are still obsessed with active investing, outperforming the market, and how the same marketing strategies that were used all those years ago are still enticing people today.
What we’ve learnt in three centuries of people schilling stocks
James Taylor is co-author of ‘Invested: How Three Centuries of Stock Market Advice Reshaped Our Money, Markets, and Mind.
He wanted to start with the famous stock market crash of 1720, or the South Sea Bubble. A wild story.
James says the media helps create the market and this goes back centuries.
He mentioned “The pleasant art of money catching…” written in the 1680s which is mad, and I had to mention because what a title that is.
Tropes have repeated themselves throughout history. What we see on YouTube today we also saw centuries ago.
Thomas Mortimer’s 1761 book ‘Every Man His Own Broker’ is widely seen as the OG text on the stock market.
People were trading shares in Exchange Alley even before there was a stock exchange which is a lovely thought. People meeting in coffee houses and selling stocks by exchanging paper.
Mortimer lost a fortune on stocks, blamed the brokers and wrote his book whilst also ironically offering to be a middle man. This is the first of many contradictions in his book and this genre of literature - which is really the lesson of the piece.
Mortimer built fear of the stock market into his writing - making people feel they needed to pay for experts - which of course has been done ever since.
Historically the market was feminised, mastering ‘her’ was the goal.
In 1863 we saw the first text giving female financial advice, by Emma Sophia Galton.
One of the strategies you see across the literature is basically authors telling punters “I’ll let you in on the secret, I’ll get you on the inside.”
Why do we persist in trying to beat the market when it’s so hard and the market has delivered great long term returns? James's research shows it’s because it’s like telling a 6-year-old that Santa Claus doesn’t exist. It takes the zing out of life. Trying to beat the market is fun. It’s challenging. It’s exciting. In other words, we persist because it’s human nature rather than rational.
This means that as a genre it survives any evidence that proves it wrong.
A lot of people think you should pay for financial advice/help because in a lot of professions, you get what you pay for.
People like feeling included too, so beware those motivations - being part of a community.
The quest for the holy grail, figuring it out, keeps people engaged.
