Practical analysis for investment professionals
30 September 2014

Three Charts That Will Rekindle Your Interest in Financial Market History

Interest in financial history (as measured by Google Trends data) has been declining fairly steadily since April 2004 and has since fallen by about 80%. If that roughly describes the amount you’ve focused on financial history over the last 10 years, it’s likely time for a quick refresher.

In the introduction to our New York Financial Market History Roundtable, our head of curriculum development Bobby Lamy noted that portfolio managers from around the world have consistently told him that an understanding of financial market history and how it affects the investment process is key to doing their jobs well.

In other words, it’s surprising that global interest in a topic that senior investment professionals around the world find valuable is dwindling. What should investors be paying attention to?

That question permeated a nearly two hour discussion in which investment luminaries Richard Sylla, Marty Fridson, CFA, Tom Scherer, and Jack Malvey, CFA considered why investment managers find so much value in the study of market history, what can be learned from it, and how investment professionals might use history to make better decisions in the Future of Finance.

So what are you missing if — like many people — you’ve been ignoring financial history? Here are three things that may awaken your interest. Clicking on any of these charts will take you to the data that produced them. Please share any observations you have in the comments field!


Stocks Yielded More Than Bonds for Almost a Hundred Years

Stocks Yielded More Than Bonds for Almost a Hundred Years

Source: Robert Shiller.


Panelist Marty Fridson, CFA, pointed out that one of the major changes in the last century came when — in 1959 — bonds started to yield more than stocks, a trend that continued until recently.


We File As Many Patents Each Year As We Used to Each Decade
US Patent Activity (Calendar Years 1790 to the Present)

Source: United States Patent and Trademark Office.


When asked for a cause for optimism, panelist Jack Malvey, CFA, noted the accelerating pace of innovation and said that he generally believed it would increase at an exponential rate. As the chart above shows, the increase in the number of patents filed in the United States alone is astounding. Last year, Americans filed as many patents as they did in the 1940s.

Tom Scherer focused on some of the reasoning Warren Buffett used in coming up with his 16 October 2008 op-ed entitled “Buy American. I Am.

He noted that Buffett likely would not have been quite so optimistic about the United States if it weren’t in a relatively strong competitive position.

As the readout from the Global Competitiveness Report 2014–2015 issued by the World Economic Forum (WEF) shows, this is in fact the case. According to the WEF, the United States remains one of the most competitive countries on the planet, surpassed only by Switzerland and Singapore. In the chart below, the green countries are the most competitive and the red countries are the least. Countries without a color (like Greenland) weren’t included in the study.



This is particularly important in the context of Tom’s next comment: “If he hadn’t seen that, maybe he would’ve had a different reaction.” In other words, even though the 200-plus years of growth the United States has seen might impel a natural optimism, Buffett seems to have analyzed the situation before drawing a conclusion.

This is one of the key lessons in using financial market history effectively: it is not a substitute for analysis or critical thinking, just an extra resource to draw upon.

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Photo credit: National Archives

About the Author(s)
Will Ortel

Will Ortel has worked in investment management since 2006 and joined CFA Institute in 2010.

Ethics Statement

I try to see the world in its particularity and convey my curiosity clearly. I hope you think I do this in a fair and transparent way, and invite you to write me if you feel otherwise (or just want to say hello).

13 thoughts on “Three Charts That Will Rekindle Your Interest in Financial Market History”

  1. In chart 1 above you have written that in 1959 stocks began to yield more than bonds for the first time? Doesn’t the chart show just the opposite? Beginning in 1959 bonds began their climb in yield to the peak that they reached in the early 80’s when Paul Volcker engineered the highest short term interest rate levels in history?? Since reaching nearly a 15% yield in 1981, long-term treasury bond yields have been falling for the past 33 years.

    1. Anthony —

      Thank you for pointing out the typo. I’ve just corrected it.

      Thanks for reading!

      Will

  2. shakti says:

    Patents history do indicate US competiveness in the world.History is a good teacher and can always add a dimension in our investment decision making.History of bond yields show its a better investment than stocks and growing patents in Us shows Us is still a hot investment.

    1. Shakti —

      I agree with you that history is a good teacher! I’m not sure any of the charts here would cause me to make an investment decision on their own, but agree that they are definitely very helpful to keep in mind.

      Many thanks for reading!

      Will

  3. Maxim says:

    it would be nice to include financial market history in the CFA curriculum, I think knowledge on this topic may help to better understand current and future trends

    1. Maxim —

      Thanks for your comment! In fact, the impetus for the event was in part to evaluate how that would be accomplished.

      Thanks for reading!

      Will

    2. Machuki says:

      I do agree with you this will enhance the understanding of the subject

      1. Machucki —

        Glad you found it worthwhile!

        All best —

        Will

  4. Matthew says:

    Good afternoon Will,

    You article and the ‘investment luminaries’ you discuss make a good point: studying financial history is important. Can you or any of your readers share their favourite books that discuss financial history?
    I have been looking for books that discuss the history of money and the markets. I have found a few, predominantly about the 2008 crash, but I welcome any others!
    Great article, i look forward to more.
    Matt

    1. Matt —

      You make a great point! I’ll see if I can work something along the lines that you suggest.

      I actually collect obscure financial books, so can suggest a couple offhand that you might get some value from. One that should be widely regarded as a classic (but for some reason, isn’t) is John Train’s “Famous Financial Fiascos” which is well-illustrated and amusingly written. I would imagine you can find an inexpensive used copy quite easily.

      I also found Donald Trump’s “The Art of the Deal” to be quite an interesting read, primarily as an account of what it was like to be him during the 1980s. I wouldn’t recommend it as a serious historical text, however.

      I will see if I can pull a bigger list together and turn it into a post. Thanks for reading!

      Will

  5. Adam says:

    A good read in response to Matthew is “Extraordinary Popular Delusions and the Madness of Crowds” by Charles Mackay.

    Crashes by Beckman is good too.

    Thanks For Article Will – enjoyed it.

    1. Adam —

      Many thanks! I’m glad you liked it. I agree that Extraordinary Popular Delusions is a fantastic read, and well worth it for anyone looking to gain an understanding of how understanding can be distorted. I haven’t heard of the second book you mention though. Are you referring to Crashes by Karen Beckman?

      Many thanks for reading! All best —

      Will

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