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Visualizing History


To celebrate Black Friday and Cyber Monday I’m offering 20% off all Investor Amnesia courses and bundle deals. That means:

Sale runs through End of Day 11/29!

Sunday Reads

Happy Sunday, readers! It has been a fairly busy two weeks for me, but I apologize for not getting a Sunday Reads out last weekend. I had the honor of presenting two keynote talks on financial history at CityWire conferences in San Francisco and Miami, which made it hard to find time for compiling a newsletter! Today is actually my 26th birthday, but I wanted to make sure you weren’t left hanging two weekends in a row!

That said, today we are going to take a break from the Panic Series as there is another topic I’m excited to discuss: the collapse of “Work From Home” stocks and investor psychology.

The New Historical Data Library

You may have noticed that in the navigation bar there is now a new tab labeled “Data”. Well, before diving into the Sunday Reads I want to highlight this exciting new tool on Investor Amnesia.

During the three years I’ve written and spoken about financial history, one of the most common requests I get from investors is “do you know where I can find historical data on XYZ ?

  • “How did stocks perform around the time of America’s Civil War?”
  • “What were government bond yields in the early 19th century?”
  • “Where can I find stock prices for individual companies in the 19th century?”

Well, today I’m thrilled to share a new addition to Investor Amnesia: a financial history data resource with 100+ sources that will constantly be updated with new datasets. Here are just a few examples of what you can find:

  • Monthly Prices for Individual NYSE Listings (1815 – 1925)
  • Annual Returns for Individual LSE Listings (1870 – 1913)
  • British Government Bond Yields (1753 – 2016)
  • Railroad Bond Yields – Investment Grade & High Yield (1857 – 1934)
  • US Market P/E Ratio (1871 – 1938)

I am just the aggregator of all these datasets laboriously compiled and organized by expert historians. That said, if you are a historian and have a dataset you’d like added (with proper attribution of course), then please send me an email ([email protected]). Now, have fun playing around with the data!

A Year of Hot Takes

I posted the tweet below in April of 2020 after seeing way too many hot takes about how post-COVID life would never – I repeat NEVER – be the same.

I’m sure you remember some of these takes… “you will never step on a plane again because we have Zoom! You’ll also never visit a gym again because we have Peloton!” Yet, as far as hot takes go, this dramatic view of post-COVID life was a very profitable one in 2020:

Much of the excitement around these stocks and the driver of their returns stemmed from our tendency to extrapolate current conditions into the future. Of course in an environment where all gyms are closed and people are largely forced to stay at home, an in-home exercise machine like Peloton will thrive and sales will boom. However, many investors then over-extrapolated this unique situation into a broader investment thesis predicated on the assumption that people will always prefer using their Pelotons to traditional gyms.

Similarly, investors bought in (literally) to the notion that Zoom meetings could replace the majority of business meetings that previously required travel. Again, you probably remember seeing tweets and headlines proclaiming that the he/she will “never travel for work again“. While we cannot decipher what the breakdown between leisure and business travel, the TSA data showing number of travelers going through security checkpoints demonstrates that airline travel is very close to pre-pandemic levels.

Now, this is not to say that there will not be a higher bar for determining which business meetings justify their travel costs, but the idea that “business travel is dead” now appears to have died itself.

Surprised by the Inevitable

As I mentioned earlier, however, the narratives of COVID-19 permanently altering our way of life created some very profitable trades in stocks poised to benefit from such a future: Zoom, Peloton, DocuSign, etc. While most investors probably understood deep down that there were very “transitory” (for lack of a better word) drivers of demand for these company’s products, investors acted upon the assumption that Peloton bikes and Zoom licenses would continue to grow in a hockey-stick like fashion.

Yet, when the inevitable moment came and companies like Peloton and Zoom reported declining growth, investors appeared to be blindsided by this news. The popular work from home stocks have had a steep fall from grace. Some of these numbers (through 11/24) are just astounding. Peloton was up 434% last year, but has crashed 74% since its January 14, 2021 peak. Zoom experienced a similar fate.

The earnings release by Peloton and Planet Fitness on November 4th encapsulated the shift in narrative taking place in markets. Shares of Peloton tanked more than 25% after reporting declining sales growth and worse than expected losses for the fiscal first quarter. Even general enthusiasm for the product was waning:

“Peloton has seen traffic to its website taper off faster than the company was anticipating in recent months. Shopper visits to its brick-and-mortar stores also underwhelmed…” (CNBC)

Peloton continued to cut it’s annual sales forecast by roughly $1 Billion, which the company itself attributed to the re-opening of the economy:

“The primary drivers of our reduced forecast are a more pronounced tapering of demand related to the ongoing opening of the economy, and a richer than anticipated mix of sales to our original Bike…”

Ironically, Planet Fitness reported earnings on the same day, and had the exact opposite experience as Peloton. Planet Fitness reported that their gym memberships are back to 97% of their pre-pandemic peak. So, instead of people permanently opting for Pelotons over the gym, it is becoming increasingly clear that products like Peloton were great during lockdown, but not a permanent replacement for things like gyms. The performance of each company’s stock in the days following their earnings release on November 4th reflect this shift away from the “COVID-19 changes everything permanently” narrative:

Humans are Bad at Predicting the Future

Why are we talking about all this and what does it have to do with financial history? Since people first started posting their hot takes in March and April of 2020 on how COVID-19 would permanently alter society, I’ve found it fascinating to witness one of the most common problems for investors in history: the difficulties of forecasting the future. Especially when it comes to issues of growth and demand.

The Wrong Exports

One of my favorite examples of this comes from the Panic of 1825, in which British investors were enthusiastically speculating in Latin America.

“While the rate of interest was lowest, men were tempted to borrow larger sums than they would otherwise have ventured on, wherewith to carry on their speculationsthe independence of some of the South American States [Spanish colonies] at this time turned the stream of speculation in that directionCompanies were formed to obtain gold and silver from mountain tops and clefts, where there were no workmen or tools to do the work, no fuel for the fires, and no roads or carriages to bring away the produce

People who declined the grosser kind of gambling – by Stock Exchange speculations – attached themselves to the idea of growing rich by trading with the new markets opened on the other side of the Atlantic. At Rio Janeiro more Manchester goods arrived in a few weeks than had been before required for twenty yearsand merchandise much of it perishable left exposed on the beach

It is positively declared, that warming-pans from Birmingham were among the articles exposed under the burning sun of that sky; and that [ice] skates from Sheffield were offered for sale to people who had never heard of ice.(Martineau, 1864)

In short, the enthusiasm for Latin / South America from British tradesmen and investors led to a dramatic over-estimation in what the demand in this new market would be. Mining companies were formed to extract gold and silver from mountains despite the fact that there were no workmen or means of transporting gold/silver should they find it. In terms of exports, British manufacturers from Sheffield were exporting ice skates to Brazilians in Rio de Janeiro, a place not exactly known for its wintry climate.

Not Enough Humans

Another example is found in the railway booms of 19th century America, where expectations of growth and demand for railways became decoupled from reality. Leading up to the Panic of 1857, for example, much of the speculation in land and railroads was tied to the expectation of settlers in a given territory. More settlers meant rising land prices, and meant that railways would be encouraged to run their lines through town, further increasing land prices. This was particularly true in Kansas:

“These new lines, with their aggressive land-purchasing policies and far-reaching plans for transcontinental expansion, provided the principal speculative opportunities for railroad investors of the 1850s. Their fortunes depended on a continuing inflow of settlers and the growth of commerce on the frontier, which required confidence in the viability of expansion westward.

In the spring of 1857 confidence abounded. The Cincinnati Enquirer reported “railroad fever”… According to Allen Nevins, a “fever of speculation in Kansas lands was raging, men selling homes, giving up well paid positions, and even borrowing money at ten percent to purchase farms.” Newspapers published along travel routes to Kansas in early 1857 described “a veritable torrent of humanity.” The lure of Kansas lands led some to expect Kansas to “increase by seventy thousand people that year.” In April settlers arrived at the rate of 1,000 per day.

The link between immigrant traffic and expectations of railroad profitability is visible in the responses to this great influx. As passengers to Kansas increased, the roads lowered rates for through traffic, indicating expectations of a lasting increase in the volume of business (and perhaps the railroads’ desire to encourage immigration to stimulate development).”

Since the success of their speculations were largely contingent upon the growth of settlers, and that growth was significant, investors in Kansas began to extrapolate booming short-term growth into long-term assumptions. This is often where the problem arises. Just because settlers were arriving at a rate of 1,000 per day in April 1857, that does not mean there would always be 1,000 new settlers arriving daily. Just because Peloton sold a ridiculous amount of bikes during quarantine, that does not mean they would always sell that many bikes.

Eventually the influx of settlers in Kansas ground to a halt, and eventually consumers started favoring the gym over Pelotons as gyms re-opened…

From a psychology perspective, we humans have a very hard time staying level-headed during economic booms. When things are good it becomes increasingly difficult to imagine how they will go bad. This is basically the core concept underlying famed economist Hyman Minsky’s work on crises:

over time, particularly when the economy is in fine fettle, the temptation to take on debt is irresistible. When growth looks assured, why not borrow more? Banks add to the dynamic, lowering their credit standards the longer booms last. If defaults are minimal, why not lend more?

Minsky’s conclusion was unsettling. Economic stability breeds instability. Periods of prosperity give way to financial fragility.”

Now, enjoy these few articles while I go enjoy my birthday!

A Post-COVID Recovery is Unlikely to Resemble the Roaring 20s


“There is now increased debate with respect to the nature of a post-COVID economic recovery. Several financial writers have referenced the Roaring 20s as a historical period that may provide useful lessons. However, a deconstruction of the key economic drivers during the Roaring 20s suggests that this period provides few parallels to the circumstances in 2021. There are two historical periods, however, that do offer useful comparisons: the years 1919 and 1999. Drawing from the lessons from these two years, it seems plausible that a post-COVID recovery may combine a consumer spending rebound that is reminiscent of 1919 with increased speculation in the stock market that is reminiscent of 1999.

The paper concludes by encouraging investors to exercise caution, noting that neither the spending rebound in 1919 nor the speculative stock market bubble of 1999 lasted long. Therefore, it seems conceivable that after the initial, post-pandemic euphoria wears off, a similarly painful economic contraction and market correction could soon follow. Should this scenario occur, readers may benefit from considering this possibility and preparing psychologically for the consequences.”

Visualizing History:

Bubbles, Gullibility, and other Challenges for Economics


Gullibility is the principal cause of bubbles. Investors and the general public get snared by a “beautiful illusion” and throw caution to the wind. Attempts to identify and control bubbles are complicated by the fact that the authorities who might naturally be expected to take action have often (especially in recent years) been among the most gullible, and were cheerleaders for the exuberant behavior. Hence what is needed is an objective measure of gullibility.

This paper argues that it should be possible to develop such a measure. Examples demonstrate, contrary to the efficient market dogma, that in some manias, even top business and technology leaders fall prey to collective hallucinations and become irrational in objective terms. During the Internet bubble, for example large classes of them first became unable to comprehend compound interest, and then lost even the ability to do simple arithmetic, to the point of not being able to distinguish 2 from 10. This phenomenon, together with advances in analysis of social networks and related areas, points to possible ways to develop objective and quantitative tools for measuring gullibility and other aspects of human behavior implicated in bubbles. It cannot be expected to infallibly detect all destructive bubbles, and may trigger false alarms, but it ought to alert observers to periods where collective investment behavior is becoming irrational. The proposed gullibility index might help in developing realistic economic models. It should also assist in illuminating and guiding decision making.”

How Investors Amplify Housing Booms and Busts


“How do periods of low interest rates affect investor demand for housing and the evolution of house prices? This paper studies this question in the unique setting of 18th century Amsterdam, combining archival data on investment portfolios, property transactions, and housing yields. Exploiting shocks in the supply of safe government bonds, I show that wealthy investors shifted their portfolios towards higher-yielding real estate when bond yields were low and decreasing. This behavior caused a large boom and bust in house prices and yields, and increased housing wealth inequality.”

Visualizing History: