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Fun reads Tuesday, March 2, 2021
In 1981 the New Yorker published a cartoon in which a man sat bemused as a news reader attempted to explain what was behind the volatility in the markets. It went something like this: “News of lower interest rates sent the stock market up, but then the expectation that these rates would be inflationary sent the market down, until the realisation that lower rates might stimulate the sluggish economy pushed the market back up, before it ultimately went down on fears that an overheated economy would lead to a reimposition of higher interest rates.” The New Yorker cartoon was not unique at the time, but part of a long tradition of amusing commentaries on the market that have seemingly become more difficult to find. It’s certainly not the markets’ fault. They’ve continued to provide unabated displays of strange behaviour that would be difficult to explain. But in today’s relentless efforts to do so, one vital ingredient seems to have gone missing – a little humour.

Perhaps it always was. On the other hand, two of the great classics on investing that are truly a joy to read, Where Are The Customers Yachts?, by Fred Schwed Jr. was published in 1940, and the Money Game written by Oxford-and-Harvard-trained George Goodman under the pseudonym of Adam Smith was published in 1967.

The great thing about both books is that they contain no less important observations and lessons for investors than those written in a more sombre tone, on the contrary.

Take, for example, this passage from Where Are the Customers Yachts?, which is as pertinent today as it was 80 years ago:

“For the record, I must make a correction to the statement that all investment trusts looked like monkeys at the time of the boom and the crash. The statement was only 99 and 44 /100 percent correct. Once Upon a time there were two small trusts, managed by the late John W Pope, which were of such stuff as dreams are made on. To be exact, the time was that impossible period in finance, 1929 - 1931. Everything about these companies was the opposite of all other trusts, including the fact that they made big money while the others were losing big money. Everything about the intellect and philosophy of the youthful Mr. Pope what the reverse of what the Wall Streeter must be. His statement of condition as of Dec.31 1930 was extremely simple. All the money was in cash and call loans, which, strangely enough, was precisely where it should have been. This statement also contained an incredible sentiment to this effect: ‘It is the belief of the management of this Corporation that a diversified list of carefully selected securities, held over a period of time, will not increase in value.’ His record of performance was even more startling than his principles. Frequently his trusts had only a single large position, and that would be on the short side. During these periods, of course, the profits showered down, month by month, and even day by day. John Pope came to his untimely death in 1931. He was still a very young man - a sort of Keats or Shelley of finance. It can never be known whether his amazing record would have been sustained; whether indeed he would have continued to be, as he was then, the brilliant exception that proves the rule.”

Perhaps the leading lesson though lies in the title of the book, which Schwed ascribes to “An Ancient Story” that goes like this: “Once in the dear days beyond recall, an out of town visitor was being shown the wonders of the New York financial district. When the party arrived at the battery, one of his guides indicated some handsome ships riding at anchor. He said ‘Look those are the Bankers’ and brokers’ yachts.’ ‘Where are the customers yachts?’ asked the naïve visitor.”

The New York Times described The Money Game as “The best book there is about the stock market and all that goes with it.”

“His (Adam Smith’s) thorough knowledge of financial affairs gives his observations a great degree of authenticity,” said the Library Journal, “But the joy of reading this book comes from his delightful sense of humour. He is a lively and in ingeniously witty writer who never stoops to acerbity. None of the solemn, sacred cows of Wall Street escapes debunking.”

This then from The Money Game:

“When John D Rockefeller was asked how he came by his vast fortune, he answered, ‘God gave me my money.’ If God is truly on the side of the biggest bank accounts, there will be some who will be offended by the very idea that the management of money is a Game, even though Game these days has been dignified by game theory, mathematics, and computeering. Money, they would say, is serious business, no laughing matter, and certainly nothing that should suggest sport, frolic, fun, and play. Yet it may be that the Game element in money is the most harmless of all the elements present. Is it always to be this way?”

John Maynard Keynes had provided the answer years before when he described the markets as a game of musical chairs and said that “even though there will be some left without chairs … all can still play with zest and enjoyment.”
 
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