This Time is Different

Abnormal Returns does a great job summarizing some of the problems with Marketocracy, wait, I mean Ka-Ching and Covestor.  Both of these companies are assuming this time will be different, but that is highly unlikely.  More in a later article.


I spent a few days on the San Juan River in New Mexico fly fishing, and had some time to read the fantastic, highly recommended book “This Time is Different“.  A few of my favorite quotes/stats below:

“Technology has changed, the height of humans has changed, and fashions have changed.  Yet the ability of governments and investors to delude themselves, giving rise to periodic bouts of euphoria that usually end in tears, seems to have remained a constant. ”

“The median inflation rates before World War I were well below those of the more recent period:  0.5% per annum for 1500-1799, 0.71% for 1800-1913, in contrast with 5% for 1914-2006.”

“Broadly speaking, financial crises are protracted affairs.  More often than not, the aftermath of sever financial crises share three characteristics:

1.  Asset market collapses are deep and prolonged. Declines in real housing prices average 35% over six years, and equity price collapses average 56% over three and a half years.

2.  Aftermath of severe banking crises is associated with profound declines in output and unemplyment.  The unemployment rate rises an average of  percentage points over four years.

3.  The value of government debt tends to explode; it rose an average of 86% in real terms.  (But real cost is not widely cited bailout costs and recapitalizing the banking system, but the decrease in tax revenues.”

From 1800-2009, there were at least 250 sovereign external default episodes and at least 68 cases of default on domestic debt.

There is also an amazing excerpt from the Saturday Evening Post, September 14, 1929 (if anyone can find the JPG or PDF I will post):

when all Europe guessed wrong

The date — Oct. 3, 1719. The scene — Hotel de Nevers, Paris. A wild mob — fighting to be heard.

“Fifty shares!” “I’ll take two hundred!” “Five hundred!” “A thousand here!” “Ten thousand!”

Shrill cries of women. Hoarse shoats of men. Speculators all — exchanging their gold and jewels or a lifetime’s meager savings for magic shares in John Law’s Mississippi Company. Shares that were to make them rich overnight.

Then the bubble burst. Down went the shares. Facing utter ruin, the frenzied populace tried to “sell”. Panic-stricken mobs stormed the Banque Royale. No use! The bank’s coffers were empty. John Law had fled. The great Mississippi Company and its promise of wealth had become but a wretched memory.

Then, the advertisement proudly promises:

Today, you need not guess.

History sometimes repeats itself — but not invariably. In 1719 there was practically no way of finding out the facts about the Mississippi venture. How different the position of the investor in 1929!

Today, it is inexcusable to buy a “bubble” — inexcusable because unnecessary. For now every investor — whether his capital consists of a few thousand or mounts into the millions — has at his disposal facilities for obtaining the facts. Facts which — as far as is humanly possible — eliminate the hazards of speculation and substitute in their place sound principles of investment.

The ad — for a company called Standard Statistics, whose address has since been turned into a Chipotle — ran on Sept. 19, 1929, about a month before the market crashed.