The History of Investment

Book talks and signings are a frequent occurrence in NYC.  Whatever your interest might be, you can find an upcoming event that will interest you.

Recently, we attended a talk at the Museum of American Finance, which is located (where else?) on Wall Street, not far from the New York Stock Exchange.  The talk was part of the Museum's lunch and learn series and was attended by Wall Streeters on their lunch break and regular Joe's and Jane's like us.  

The Museum of American Finance, 48 Wall Street

Authors Norton Reamer and Jesse Downing presented their new book, Investment: A History.  The book is a first ever history of financial investment throughout the ages, from the Old Testament to Shakespeare to the present.

The authors (pictured below) have some street cred.  Norton Reamer was a long-time money manager--first at Putnam and later at a fund he sold in August 2008, just before the financial meltdown.  The timing was luck, not design.  Jesse Downing is a Harvard-trained economist.  The authors were engaging and entertaining speakers, telling stories about Railroad Barons and other scoundrels through time. 

Authors Norman Reamer and Jesse Downing signing their book (note the stock certificate on the table signed by railroad magnate Jay Gould) 

The authors described historical themes they observed.  One important theme is the democratization of investment--the slow progression of investment opportunities that were reserved to the power elite for thousands of years to investment opportunities available to anyone with some extra shekels or ducats to invest.  Long ago, only the privileged had the financial and legal means to put capital at risk and earn a return.  Today, a much larger percentage of the population has the ability to invest.  

Another important theme was the modern capability to diversify investments, shifting from an all-eggs-in-one basket approach to eggs in many different baskets.  Coupled with the ability to diversity was the rise of investment size more than a century ago.  Investing science tells us not only how to evaluate individual investments but also why diversification can be sound.

Other themes include the rise of funded retirements over the past century, legal reforms that foster investment and regulatory reforms that level the playing field.  For example, insider trading was not widely barred until the 1960's.  Before then, trading on non-public info and tips was fair game and financially rewarding.  

We have not yet read the book.  So, we are not yet in a position to recommend it.  However, we believe it was thoroughly researched and we suspect the history is well told in light of the authors' engaging talk.  

One interesting factoid shared by the authors was the extraordinary annual compensation paid to some hedge fund managers in 2013.  While the highest paid managers outperformed the market, some failed to do so but still reaped extraordinary windfalls, while at least one cheated along the way.  The authors questioned whether the existing compensation scheme makes sense and will last.  

2013

          1. David Tepper (Appaloosa Management)                   $3.5 billion
          2. Steven Cohen (SAC Capital Advisors)                      $2.4 billion
          3. John Paulson (Paulson & Co.)                                   $2.3 billion
          4. James Simons (Renaissance Technologies)                 $2.2 billion
          5. Kenneth Griffin (Citadel)                                           $950 million
          6. Israel (Izzy) Englander (Millennium Management)      $850 million
          7. Leon Cooperman (Omega Advisors)                         $825 million
          8. Lawrence Robbins (Glenview Capital Management)  $750 million
          9. Daniel Loeb (Third Point)                                          $700 million
          10. Paul Tudor Jones II (Tudor Investment Corp.)         $600 million

It looks like the power elite is alive and well.

David Tepper:  Why isn't he smiling?