This Puck cartoon from 1910 remind anyone of EV mania this year…. ?? Look at the caption and the way investors are sacrificing their children’s savings and mortgaging their house in the name of automobiles. Insanity!
Visualizing History
One of the exciting developments for Investor Amnesia this year was the partnership with Global Financial Data, which is a dream platform for anyone interested in financial history data. Honestly, I’ve said before that it’s felt like a financial history nerd super power having access to their database. With almost any stock from history that I read about, I can search for it on their platform and find the daily / weekly / monthly returns for the stock. Here are some of my favorite charts from the year.
REQUEST A DEMO HERE
The team’s post on the potential “COVID Decade” proved to be one of the most popular links this year:
The COVID Decade
(Source: Global Financial Data)
From the Archives
American Securities: The Causes Influencing Investment and Speculation (1885)
By far the most popular archival book linked in 2020.
Sunday Reads
Well, well, well… what a year. This is going to be the last post in the year of our lord 2020, and it seems rather impossible to even attempt summarizing the insanity that was 2020 in one email. That said, I’m not going to try.
However, I am going to give a brief recap of what proved to be a very exciting year for Investor Amnesia. Additionally, I will link to some of the most popular Investor Amnesia posts and content from this crazy year, and I’d encourage you to review them for links you may have missed.
Investor Amnesia
Perhaps its just me, but I always enjoy reading behind the scenes content from the people I read or listen to, so I’ll just give some brief highlights of this year for the Investor Amnesia brand.
What has been truly spectacular this year and exciting to watch as a history buff is the widespread interest in history as people sought answers for these ‘unprecedented times’ by looking to the past. I mean truly ask yourself if you had ever heard of the Spanish Influenza before this year? I knew of it, but like most people I certainly was not as knowledgeable about it to the degree I am now. It feels like the average person now could rattle off more facts about the Spanish Flu then they could about the Swine Flu.
That said, when I posted my article on Pandemics & Markets on March 1st, it proved to be by far and away my most popular post to date. To me, this post taught me everything that I needed to know as a content creator about the importance of consistency. If you keep churning out weekly posts it increases the odds that one of them will hit and elevate your readership to another level. As the charts below from Google Analytics and Mailchimp show, it’s pretty easy to spot when I posted the Pandemics & Markets piece…
This post was one of the first times it really felt like I was doing something important in a time when people needed history. From that point on the Sunday Reads evolved from something I might spend 2 hours on a week to something that I dedicated upwards of 8-10 hours every Saturday, and waking up at 5:30 Sunday mornings to make sure that what I wrote on Saturday made sense before sending out at 8AM. It’s been a lot of work, but rarely feels like it because of my love for history. I really just want to say a sincere thank you to all of you that have subscribed this year, and taken the time to read my work. It really means a lot.
So, thank you again for helping make this an incredible year in an otherwise awful one, and roll on 2021! Now here are some highlights from the last year.
Pandemics & Markets
This was the post that really helped put the newsletter on the map, and it feels like it was published a decade ago but really it’s only been 9 short months. It is interesting to look back at this post and remember the totally different mindset we were all in on March 1st, when the world seemed to be crumbling. Even if you read it the first time around, I think that this post is certainly worth re-reading.
Investor Amnesia Course: Bubbles, Manias & Fraud
In addition to the growth in newsletter subscribers this year, one of the most exciting developments for Investor Amnesia was the launch of my first online financial history course, which debuted November 23rd. In just over a month, over 300 students have enrolled in the course to learn from some of the greatest minds in finance and financial history about the history of Bubbles, Manias & Fraud.
If you haven’t heard about the course, watch the video below to get a preview of the 6 hours of lectures that the course offers.
If you’d like to preview a few of the lectures, then definitely check out the website: Bubbles, Manias & Fraud.
And because it’s the holiday season ENTER HISTORYRHYMES AT CHECKOUT FOR 10% OFF!
In the midst of Hertz mania where speculators were driving up the price of a bankrupt company’s stock, I wrote this article on Poyais and Rubbish Rallies. This was a rare example of something even more ludicrous than rallying stock prices post-bankruptcy. Here’s an excerpt:
A Speculative Year
1825 was a year of bubbles and manias due to low interest rates and cheap credit. Investors that had relied upon government consol bonds for their source of income were forced to reach for yield and returns by investing in riskier assets. Most of the speculative fervor in this period manifested itself in high-yielding Latin American debt, mining stocks, and domestic joint-stock companies (I discussed this bubble with Jim Grant on Real Vision, which you can watch here). Winton summarized the boom in domestic schemes:
‘From this time ‘bubble schemes came out in shoals like herring from the Polar Seas’, illustrated by the fact that the number of bills coming before Parliament for forming new companies shot up from 30 in March to 250 in April.
All manner of companies were floated. Many were related to Assurance; there were also some novel ventures such as the Metropolitan Bath Company which aimed to pump seawater to London so that poor Londoners could experience seawater bathing, and the London Umbrella Company which intended to set up umbrella stations all over the capital.
Many ventures, however, were arrant swindles designed to test investor credulity. Such examples include the Resurrection Metal Company, which intended to salvage underwater cannonballs that had been used at Trafalgar and other naval battles, and a company (possibly a parody) which was set up ‘to drain the Red Sea, in search of the gold and jewels left by the Egyptians, in their passage after the Israelites’.”
While each of these ventures are ridiculous in their right, this article will be focusing on the bubble marked out in the image below: Poyais.
In terms of the actual research and writing process I don’t think I’ve enjoyed a Sunday Reads post more than this deep dive on the history of electric vehicles (a 19th century invention) and the relationship between speculation and innovation. I cannot implore you enough to read this post (I think it’s my best work), so I’ll leave you with the introduction as a teaser:
We’re going to talk about the recent boom in electric vehicle (EV) companies, as it seems that a new EV startup is making headlines or going public via a SPAC every 3 days, and the stocks of anything even loosely related to electric vehicles are soaring. In talking about this EV boom, there are two primary themes that I want to cover: the long history of electric vehicles and investor behavior.
Electric Vehicles: A 19th Century Innovation
The electric vehicle is nothing new. It will come as a surprise to many readers, but the electric car was invented almost 200 years ago, in 1832. In fact, the first electric vehicle was built 50 years before the first internal combustion engine vehicle (ICEV).
During the 1890s, EVs outnumbered other vehicles 10-to-1, and by 1912 there were 38,842 electric vehicles on the road.
In an era when America’s road system was poor and undeveloped, electric vehicles thrived as the vast majority of driving trips were short-distance, making an EV’s “range” a non-issue. However, some of the early EVs had a mileage range of 180 miles off a single charge! The picture below shows an early charging station in 1912:
Charging an EV (1912)
At the time, internal combustion engines were also undesirable because they were physically demanding (and often dangerous) to start. Gasoline cars had to be “hand-cranked” to start, and this process was known for breaking the owner’s wrists / arms. This problem proved so pervasive, in fact, that the term “Ford Fracture” was popularized following the injuries sustained while hand-cranking early Ford models. Electric vehicles, on the other hand, were easy to start and did not require the hand-crank method. Since they were not physically demanding to start like the internal combustion car, EVs became incredibly popular for women drivers. Even Henry Ford’s wife drove an electric vehicle.
To really see one of these early EVs in action, watch Jay Leno drive his 1909 Baker Electric, which could travel up to 100 miles on a single charge:
So, instead of the recent boom in electric vehicles representing a “new” alternative for internal combustion vehicles, EV’s are in the early stages of a century long comeback to reclaim their spot as the dominant vehicle. To really drive home how similar the “new” ideas in the EV industry today and those of the early 1900s are, consider the comparisons below:
This all begs the question, what led to the original downfall of EVs? Well we’ll get to that later in the linked articles, but in short:
“By 1912, the gasoline car had already taken over the largest share of the automobile sales (more than 90 percent). They were faster and could drive longer distances – not only because of their better range but also because of a more elaborate refuelling infrastructure. The rapidly expanding paved road network worked in their favor, too.“
Internal combustion engines became much cheaper than electrics. In 1908, Ford introduced its mass-produced (and gasoline powered) Model-T, which initially sold for 850 dollars – two to three times less than the price of a similar electric vehicle. In 1912, the price of the Model-T came down to 650 dollars. That same year, the electrical starter for gasoline vehicles appeared, and took away one of the last selling points of EV’s. Last but not least, gasoline had become much cheaper than it had been at the end of the 19th century.
The only advantage left was the (potential) cleanliness and noiselessness of electric vehicles, the reason we want them back today. In 1914, Henry Ford announced the marketing of a cheap mass-produced electric vehicle, but this automobile was never produced.”
SPACs, Electric Vehicles & Speculation
As a species, we are remarkably predictable. Particularly when it comes to investing. Since I began writing and posting content about financial history, I have received variations of the same question in basically every conversation, podcast appearance, etc.:
“What are some of the specific and identifiable patterns / trends that repeat themselves in financial history?”
While there is no shortage of suitable answers, today I want to focus on a concept that was popularized by Warren Buffett, but appears in historical sources as early as 1866: The Three I’s (Innovators, Imitators, Idiots).
In a 2008 appearance on Charlie Rose, the host asked Warren Buffett: “Should wise people should have known better” during the financial crisis? Buffett responded:
“People always should know better. People don’t get — they don’t get smarter about things that get as basic as greed. You can’t stand to see your neighbor getting rich. You know you’re smarter than he is and he’s doing these things and he’s getting rich. And your spouse is getting unhappy with you because you aren’t doing. Pretty soon, you start doing it.
So you get what I call the natural progression, the three I’s, the innovators, the imitators and the idiots. Everybody just kind of goes along and you look kind of silly if you disagree. You can have these crazy Internet valuations in the late 1990’s, but they proved themselves out in the market. I mean, the next day, they were selling for more than they were the day before. And people said, you’re crazy if you don’t get in on this. It’s very human.”
As I alluded to, investors were already aware of this “Three I’s” concept back in 1866, as an issue of The Economist demonstrates:
Kind of depressing, isn’t it? You’d think that if we knew about this Innovator -> Imitator -> Idiot progression in 1866, we’d have learned how to avoid it in the 21st century. Nope!
Today we see this with the boom in electric vehicle companies. No matter your view on Tesla or Elon Musk, there is no debating the fact that Tesla’s stock price has soared more than 300% since the middle of March. As of today’s post, the stock has returned 530% over the last year. Retail speculation and excitement surrounding Tesla has boomed this year as speculative trading became easier than ever through commission-free trading and government provided stimulus checks.
As always, however, the next phase of speculation was increased trading in other electric vehicle companies that might be “the next Tesla”. It is no coincidence that the boom in new EV companies has coincided with the parabolic rally in Tesla’s share price. Investors who may have missed out on the Tesla trade, but saw how much other investors profited, plowed money into new EV companies like Nikola, Li Auto, Nio and others in the hopes of benefiting from a Tesla like rally. It’s the same as it ever was.
History is riddled with examples of speculative fervor stemming from people seeing the outsized returns generated on an innovative technology or company. After missing out on the dramatic success of this innovation or stock, investors will herd into the next best option in efforts to achieve similarly outsized returns.
History as a Compass – Coronavirus, Financial Crashes, and Lessons from the Past
Earlier in the year I was also fortunate enough to host a special on Real Vision covering financial history with some truly exceptional people. In this 2+ hour long special I spoke with Jim Grant, Scott Nations and Jim Chanos about some of the important lessons from history that investors could leverage to navigate the wild swings of uncertainty existing in markets at the time due to COVID-19. While a lot has changed in the short number of months since this aired in late April, there is still so much to learn from these top investors.
MISS LAST WEEK’S SUNDAY READS? CATCH UP HERE
