Good financial advice hasn't changed in 300 years

Do you want to know how to make money in the stock market? In particular, do you want to know what will give you an edge over everyone else? I think you do. And I'm not the first finance writer to think so.

I'm reading the wonderful "Invested: How Three Centuries of Stock Market Advice Reshaped Our Money, Markets, and Mind," a magnificent effort from five dedicated academics covering a full 300 years of printed investment advice. That adds up to an awful lot of books. But skim the contents of a few and you will find that under different titles and guises, they mostly give the same rather good advice — advice we are as well to follow today as we were in the 18th century. 

The genre was kicked off by Thomas Mortimer in 1761, with his "pioneering" guide to the market, "Every Man His Own Broker," which played on the popular idea that experts were rather overrated. ("Every Man His Own Broker" followed popular publications such as "Every Man His Own Doctor" and "Every Man His Own Lawyer.") He found a very ready audience: The book was a hit "racing through five editions in little more than 12 months," according to "Invested."

Mortimer's success at opening up what was in retrospect an obvious market (who doesn't want to know how to get rich?) encouraged a raft of similar publications. Thomas Fortune's "Epitome of the Stocks and Public Funds," for example, first published in 1796 had hit 17 editions by 1856. In the early 1800s, the joint stock boom created a whole new arena for financial writers, and advice pamphlets on mining and railway stocks appeared in impressive numbers in the US and in the UK — "A Short Sure Guide to Railway Speculation" being a classic of the genre.

Then the volume of publications went nuts — there are now tens of thousands of them. But what "Invested" makes clear is how very little the genre has changed. From Moses Smith's "Plain Truths About Stock Speculation" (1887) and Burton G. Malkiel's "A Random Walk Down Wall Street" (1973) to Jim Cramer's "Mad Money: Watch TV, Get Rich" (2006) and "Don't Panic: How to Manage Your Finances and Financial Anxieties During and After the Coronavirus" (2020), the basic messages are the same. 

There is a science and predictability to the markets. You can beat them on a regular basis. Follow the rules and the whole thing is a piece of cake. 

So what rules can we pull from these 300 years? What has stood the test of time?  

When interest rates are high, you need stock markets less than when rates are low. One interesting dynamic is the surge in advice books when yields are low and investors feel shortchanged on deposits. Think of the late 1800s and early 1900s, when financial journalist Henry Hess noted that his readers had no choice but to "pilot their finances safely between the Scylla of low yield and the Charybdis of great risk." Think, of course, of the last decade too.   

Keep your costs low. From day one, Mortimer was warning that not only was it impossible "for a broker to give any gentleman candid and disinterested advice," but that their commissions would eat away at any potential returns. Circumventing them, he reckoned, would "save the public half a million per annum." Today this advice manifests itself in the hundreds of books on passive investing with John Bogle's "Little Book of Common Sense Investing" being the must-read on the matter.

Look for value. William Fairman, author of "The Stocks Examined and Compared" (1795) was keen for his readers to make "real purchases" for example, and Benjamin Graham's "The Intelligent Investor: The Definitive Book on Value Investing," remains exactly that.

Diversify. Beeton's "Guide to Investing Money" (1870) was very clear that bond investors should divide their holdings among Turkish, Italian, Spanish, Egyptian and Argentine loans (!) rather than focus on just the one. Harry M. Markowitz modernised the idea in his classic "Portfolio Selection: Efficient Diversification of Investments."

Finally, think long-term and keep your emotions in check. Here's Malkiel summing up all 300 years of writing on this bit: "It is not hard to make money in the market. What is hard is the alluring temptation to throw your money away on short get-rich-quick speculative binges. It is an obvious lesson but one frequently ignored."

But here's the question: With so much published on the subject and it all seemingly straightforward, why aren't we all rich?

You might as well ask why have we not all started successful businesses or why are we not all delightfully thin. The answer is neatly given by the title of Richard Oldfield's investing book "Simple But Not Easy."

Books on entrepreneurialism, weight loss and investing all tell simple truths. Just get started. Change your eating habits. Buy low and sell high. But they don't offer magic; there is no special pill. To be thin, successful or rich, we have to do actual work (eat differently, start a business, learn valuation methods), and mostly we don't do that.

Instead, we use finance books in the same way we use self-help books — more as a reminder of possibilities than anything else. Ask a successful financial publisher what he sells, and if he is honest he will say not solutions but "hope."

The good news is that if you would like to turn that hope into reality, now is as good a time as ever. Two years ago, says GMO's Ben Inker, global stock markets were (with a few small exceptions) so overpriced that buying in was guaranteeing capital losses. 

That's not the case today: Last year, global markets lost around 25% in inflation-adjusted terms, and there are a good many areas where you can safely buy for the medium term, with Japan, emerging markets and the UK being the best of the bunch on most valuation measures. (Listen to the Merryn Talks Money podcast with Inker for more on this.)

So follow the basic instructions in just one of the many investment books you have on your shelf, and while you might track the market more than beat the market, you will at least have made a start. And you won't have to buy any more books.

Illustration: TBS

Merryn Somerset Webb is a senior columnist for Bloomberg Opinion covering personal finance and investment.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.