Five Questions: Lessons From Finance History with Jamie Catherwood

By Jack Forehand, CFA (@practicalquant)

Recency bias can be a major issue for many investors. When we analyze the probability of any event in the market occurring, we tend to rely more on the recent past than we should. That can mean that we give too much credence to the most recent year or most recent few years. But it can even go further back than that. For example, when we think about what a bear market looks like, we tend to think about 2008 or 2000 because we experienced them ourselves. In reality, though, most bear markets aren’t that severe.

It is clear we can all benefit from some more knowledge about market history. And that is the focus on our interview this week. Jamie Catherwood is known as “the Finance History Guy” on Twitter. Despite just graduating college in 2017, he has used his deep knowledge of finance history and his impressive networking skills to amass over 16,000 Twitter followers (yours truly has barely crossed 1000). He also was recently hired as a Client Portfolio Associate at O’Shaughnessy Asset Management.

In this interview, we discuss finance history and what we all can learn from it.

Jack: Thank you for taking the time to talk to us.

When most investors think about finance history, they tend to focus on their own investing lifetimes. Even those who study history more deeply will typically stop their analysis sometime around the Great Depression. Your articles show that there is so much more to finance history than that. I am wondering if there are some major themes from your study of finance history beyond the typical periods that investors look at that stick out to you. If you could pick two or three lessons that have stood the test of time, what would they be?

Jamie: Thank you for having me! Well let me just say that if you stop your historical research around the Great Depression, then you’re missing all the good stuff! Many of the core principles underlying finance and markets today can be found in the annals of history stretching back thousands of years. To directly answer your question, though, I think there are a few major themes that stick out:

[1] Human nature never changes.

As my boss Jim O’Shaughnessy says, ‘human nature is the last arbitrage’. Greed and fear have ruled the markets since their inception, and there’s no reason to believe that will change.

[2] The ‘Hot New Thing’ is often the ‘New Fad’

Reading about markets across hundreds of years, it’s quickly apparent that whatever the new technology or asset that investors are rushing into, odds are that it’s a fleeting fad. Sea ‘diving technology’ companies formed for the purpose of treasure hunting in the 1690s being a perfect example. The 1690s saw a boom in ‘Tech’ IPOs, but by the end of the decade, 70% of the companies on the market had been wiped out.

[3] And of Course, This Time is *Rarely* Different

Jack: There have been some studies recently that have looked at things like value and momentum back to the early 1800s. The studies showed support for both types of investing, but it got me thinking about what the data for a period that far back in history would have looked like and whether the quality was sufficient they we can rely on it today. Ben Carlson and Tadas Viskanta of Ritholtz Wealth Management did a recent podcast where they expressed similar questions about how reliable data going that far back can be. I was wondering if you have come across market data going back that far in your studies of market history and if you could talk about what it looks like and how applicable it might be to the types of strategies that are typically run today?

Jamie: Believe it or not, I’ve read a paper that claimed to have accurate commodity data stretching back to something crazy like 3,000 B.C.! When it comes to analyzing data from the 1800s and beyond, however, I would say that there’s a real dispersion between the good/bad data, so you must check the source.

I have seen some historical ‘Indices’ that will only include three stocks, or something like that. Not exactly robust! Once you get into the late 19th century, and early 20th century, though, then the data becomes much more reliable. As far as informing our current strategies, I don’t think that data in the 19th century would be as useful, but once you get into the 1920s, that changes. One example being the recent paper from our Co-CIO, Chris Meredith, which analyzed a period of Value underperformance similar to today in 1926-1941.

Jack: In your excellent piece The Quant Frontier, you talked about the history of factor investing and how it goes back much further than many of us think. You also showed that the fact that quant signals deteriorate over time is nothing new. Determining when a signal has truly deteriorated and when short-term results are just noise can be one of the most challenging things in investing. For those of us who practice value investing, the most recent decade is a great example of that challenge. Has your study of history shown any consistent lessons that be used to evaluate a signal that is not working over the short-term that can help us understand whether it will continue to work over the long-term?

Jamie: While this example isn’t of a specific signal, the story of Tokushichi Nomura in the early 20th century is a great testament to the importance of evidence-based investing, and maintaining discipline when performance is going against you.

Nomura had made a killing in the Japanese bull market of 1906, but after researching global stock market valuations, he concluded that the Japanese market was over-valued. Nomura subsequently sold all of his long positions at an enormous profit and poured the proceeds into a large short position on Japanese stocks. However, the Japanese bull market roared on for months, and Nomura was feeling the heat.

Margin calls began flowing in as creditors questioned the rationale behind Nomura’s shorting a market that seemed to endlessly rise. Nomura later recalled hiding under his desk when creditors came into his office demanding repayment.

When he then asked a friend, Shibayama, for a loan to finance his margin calls, Shibayama urged him to reconsider. Nomura maintained his conviction:

“He handed Shibayama a list of all his personal assets and pledged them to the bank. ‘I am betting my life that I am correct. If someone considers a matter thoroughly and does nothing, the outcome is the same as if he had considered nothing at all. I have never been wrong.’”

Two days later, Nomura’s data-driven investment thesis came to fruition. Japanese stocks began to slowly decline, before then plummeting 88% in a matter of months. The discipline paid off.

Jack: One of the most consistent things I have seen in looking at market history is the negative effect of investor behavior on returns. It seems that no matter how much we learn about it and no matter how much our technology improves, we still cannot overcome the way we are wired at human beings. You have studied investing history much further back than I have and I was wondering if you have seen evidence that the way act now is consistent with how we always have. Do you have any favorite examples of the negative impact of investor behavior from your study of history?

Jamie: Certainly! I know I’m beating a dead horse, but again, this is a great setup for the idea of ‘arbitraging human nature’. Investors today are acting just like those of previous centuries. I think that’s why financial history resonates with so many finance professionals. Even though something might have occurred in medieval times, the problems and situations are familiar.

As far as examples go, I could give you hundreds! To choose one, I’ll use the below excerpt from a 1911 book on Wall Street, which demonstrates investors’ tendency to make decisions without any individual research or due diligence:

“As an example of the means by which the small fry finds their way into the mouth of the great pike operators a very old story may be revived.

Jay Gould — or some such person — on one occasion being asked for advice by the pastor of a rich and fashionable New York Tabernacle, whispered a recommendation of Pacific Mail and promised to reimburse the pious man if his purchases of that stock should result in loss.

When the pastor came to him later, deeply distressed by a heavy personal loss, Gould was as good as his word, and promptly handed him a cheque for the amount. ‘But how about my parishioners?’ inquired the reverend gentleman. ‘You placed no ban of secrecy upon me, and their losses are enormous.’

To which Gould replied calmly, ‘They were the people I was after.’ Thus was verified a Japanese proverb: ‘The darkest place is just below the candlestick.’”

Jack:  You have had some really impressive success early in your career. You were about to go from straight out of college to meeting some of the biggest names in finance and landing a job at one of Wall Street’s most respected firms. Can you talk a little about what you attribute your success to and if there are any lessons that the rest of us can learn from what you have been able to accomplish?

Jamie: Well that is a very generous and (overly) kind description, so thank you! I’ll start off by saying that I don’t know how much ‘success’ or ‘accomplishments’ I’ve had, but I do think that I can offer some tips on networking. The main tip is that there is no ‘trick’. The problem is that I think most people just don’t believe that the cold email/DM will work, and they won’t get a response from the person they’re reaching out to.

While that will certainly happen every so often, you’ll be shocked at how successful the cold message can be. I mean, this time last year I had cold emailed Patrick O’Shaughnessy to see if I could buy him lunch and say thank you for all the help he unknowingly gave me in the form of Invest Like the Best. He responded saying he was up for it, and so one July morning I got up at 4AM and drove up to Stamford from DC for lunch. One year later… I’m working for the guy!

All this to say that you should just reach out to people in a gracious, polite way, and try to establish a connection. You never know where it will lead.

Jack: Thank you again for taking the time to talk to us today. If investors want to find out more about you and O’Shaughnessy Asset Management, where are the best places to go?

Jamie: Thank you for having me! I really appreciate it. If you want history, then head to my new website . If you want to learn more about O’Shaughnessy Asset Management, then head over to

Photo: Copyright: / alaskajade

Jack Forehand is Co-Founder and President at Validea Capital. He is also a partner at and co-authored “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies”. Jack holds the Chartered Financial Analyst designation from the CFA Institute. Follow him on Twitter at @practicalquant.