Title: “The Subsidized Newspaper”

Caption: “The promoter waters the stock, the newspaper booms it (for a consideration) and the silly public buys it – after which the water is squeezed out.”

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Anyone that has ever received a “we need to talk” text knows that panic and stress that follows. Why?! When?! Why? But also, WHY!

In most cases, the actual topic requiring discussion is nothing scary, but the anticipation of the event (“the talk”) is what produces so much distress.

This admittedly dumb analogy is actually very relevant for markets and investors. The first behavioral finance book, published in 1688 by Josef de la Vega, stated:

“the expectation of an event creates a much deeper impression upon the [stock] exchange than the event itself.”

1688! More than 300 years later this rings as true as ever. Whether it be the outcome of an election, economic data readings, earnings release or Fed decision, investors do not like the anticipation of an event. Our imagination runs wild with predictions of what the “event” outcome might be, and how that could affect our portfolios.

Since predicting the future is insanely difficult, and few can do it well, the result is very similar to the “we need to talk” scenario: we overthink and stress about the event beforehand, but there is nothing to worry about in the end. Even when the outcome of an event goes against you, the impact on one’s portfolio is usually temporary.

That said, many investors still stress in the leadup to key events and overtrade as a result. This almost always backfires, as the world is surprising and hard to predict. Yet, even when we get burned by trying to predict outcomes, the next time an opportunity presents itself… our reaction is the same:

This is especially true for investors’ reaction to – and anticipation of – CPI readings and Fed decisions this summer. An eight minute speech from Jerome Powell on Friday crushed investors’ hopes of a “Powell Pivot”, a narrative that had been extrapolated from July’s flat month-over-month CPI reading (ignoring the fact that inflation was still 8.5% higher year-over-year). Bloomberg reported:

“Powell signaled the US central bank is likely to keep raising interest rates and leave them elevated for a while to stamp out inflation, and he pushed back against any idea that the Fed would soon reverse course.”

In response, the market tanked:

  • Dow Jones Industrial Average: (-3.0%)
  • S&P 500: (-3.4%)
  • Nasdaq: (-3.9%)

The fact that markets expected some sort of Powell pivot in itself was pretty interesting, as it highlighted how optimistic investors had become after just one flat CPI reading on a month-over-month basis. The about-face also underscored how quickly optimistic narratives based on scant data or evidence can gather steam.

Exhaustive media reports on inflation and Fed decisions encourages investors to overreact to short-term developments. However, making investment decisions based solely on the outcome of one “event”,  and trying to predict that outcome beforehand, is a fool’s errand that only leads to overtrading.

Legendary psychologist and economist Daniel Kahneman summarized this perfectly on an episode of Masters in Business:

“Whenever we are surprised by something, even if we admit that we made a mistake, we say, ‘Oh I’ll never make that mistake again.’ But, in fact, what you should learn when you make a mistake because you did not anticipate something is that the world is difficult to anticipate. That’s the correct lesson to learn from surprises: that the world is surprising.

You will always be surprised in a game of predicting the future, so play a different game.


As we noted earlier, human’s affinity for forecasting and predicting the future is nothing new. Nor is the problem of overtrading in anticipation of an event.

Even in the 18th century there were people ridiculing this problem. During the American Revolution, for example, financial markets reacted to every piece of information in newspapers on the outcomes of battles, etc. This dynamic encouraged speculative predictions based on opinions, not facts, much like today.

Before long, markets not only reacted to actual facts about the war, but also predictions and speculative reports about who would win the war, and the subsequent impact on markets.

In an effort to mock investors that bought / sold assets based on newspaper predictions, a French-language gazette based in London, Courier de l’Europe, ran a satirical letter sent from the moon (source):

“In the late summer of 1776 this paper [Courier de l’Europe] featured a letter signed by Endymion and sent from the Moon. Thanks to a secret means of transmission that he would not disclose, Endymion and his fellow moon dwellers enjoyed the Courier de l’Europe a mere two days after its publication in London…

Endymion also offered his services as a political correspondent: ‘I am situated here in such a way that I see America clearly across from me, and for this reason I am able to quickly inform you of whatever happens between the King’s Troops and the Rebels. For my first news report, I will tell you that New York was taken by General Howe, and that the Rebels experienced huge losses. This will not be known to you by ordinary means until September. Strike it rich in the funds using this anticipated information.’

For the Courier’s readers across Europe, Endymion’s letter offered a satire of the culture of speculation that shaped transatlantic journalism in the age of the American Revolution. This letter from the Moon mocked the stockjobbers who spread false news to move the market and the readers who were duped by their schemes.

This excerpt above also highlights another issue with investing based on forecasts, predictions, or other people’s opinions about the impact of future events: you can’t believe everything you read. For example, consider this story of Henry Marks…

Henry Marks & The Rae-Transvaal Gold Mining Company

During the 1880s, London experienced a mania for South African gold mines known as the “Kaffir Boom”. In 1887, one company receiving a lot of attention in outlets like The Financial News, was the “Rae-Transvaal Gold Mining Company”. The Financial News printed 33 investment recommendations for the Rae-Transvaal Gold Mining Company in just 3 months, stating that the company embodied “every element of success”, and was therefore “likely to prove a good speculation”.

There was one slight issue with these recommendations, however…

The Rae-Transvaal Gold Mining Company had been founded by none other than Henry Marks, who was… Managing Editor of The Financial News! During this Kaffir Boom, Marks decided that he wanted to make some quick cash to supplement his journalist salary.

Henry Marks

His novel idea was to launch a fraudulent gold mining company to lure in gullible investors. Marks purchased a defunct farm in Transvaal, a former province of South Africa, and floated shares of the “Rae-Transvaal Gold Mining Company”. Marks then flooded his paper with articles enthusiastically supporting the company aimed at convincing readers to invest.

Going one step further, Marks enlisted his brother-in-law and mistress to submit countless fake purchase applications to feign demand. Marks also ran fake high subscription premiums in his paper to further convey the sense of demand and excitement.

Accordingly, the Rae-Transvaal Gold Mining Company became an actively traded stock, and enabled Marks to dump his shares on gullible investors at a profit. The company itself, however, was not so profitable (or even operational). Marks’ company had spent a paltry £138 on prospecting equipment, and only managed to dig a mining shaft 30 feet deep. Expectedly, the company never produced a single ounce of gold, and was liquidated in May of 1888. Rae-Transvaal Gold Mining Company’s shareholders lost everything, and the firm’s creditors received less than 5% of what they were owed.

Yet, for readers of The Financial News, it must have been hard to ignore the constant barrage of recommendations and hype for Marks’ Rae-Transvaal Gold Mining Company. Anyone would be forgiven for feeling the urge to invest after reading such positive and persuasive opinions. Marks’ paper was a respected outlet, and investors had no reason to think he was running a fraudulent scheme. In fact, one of the great ironies was that The Financial News had a stated intent of uncovering fraudulent activity in financial markets. Woops!

The story of Henry Marks and his gold mining scam offers a good lesson for investors to remember: you can’t believe everything you read. Furthermore, you should not invest based solely on someone else’s opinions.


The purpose of today’s post was to remind investors (myself included) of a few key lessons:

  1. Don’t overthink and overtrade in anticipation of market “events” like a Fed decision.
  2. Don’t try to predict the outcome of market events, or forecast the future.
  3. Look for trends, not single data points.
  4. Investing based solely off the opinions of other investors is a dangerous game. Do your own research.

Lastly, I’m thinking of doing a short series that profiles interesting characters from financial history in future newsletters. Let me know if you think that sounds interesting!

Suggestions and/or feedback are always appreciated!


Remember to check out the new course!