The history of investing
Quilter Cheviot may have been around for 250 years, but this amounts to just a brief moment across the full history of investment.
The investment industry landed spectacularly in the public consciousness in 1987 with the iconic film ‘Wall Street’. It portrayed the industry as soaked in glamour, money and huge personalities, and sparked a generation of wannabe Gordon Gekko. A stereotypical view of investment was born.
However, there is much more to the history of investing and, for its origins, we must go a lot further back…
The first evidence of investment stretches back to around 1700 BC. People back then had to deal with many hardships: famine, pestilence… and financial services regulation.
In 1700 BC the Code of Hammurabi was created by the ancient Babylonians. Inscribed in a rock statue, the Code of Hammurabi contains legislature on several important areas – including investment. This code provided a legal framework for the ownership of land and how loans should be written, the requirements of debtor arrangements and how interest should be calculated. Rudimentary perhaps, but the first written evidence of parties placing a value on an asset with a means to that growing in time.
There are other signs of investment in the ancient world, too.
Roman emperor Augustus has the unenviable legacy of causing the first financial crisis (in 33 AD) when he aggressively extended credit into the real estate and public sector. This led to land and real estate prices rising rapidly, bringing about credit restrictions and massive deflation. Markets inevitably crashed and a huge amount of credit was provided at zero interest to steady the economy. Some things never change…
A watershed moment came in 1602 when the Amsterdam Stock Exchange, considered to be the world’s oldest, was established. This presented an arena for investors to buy and sell shares in companies, giving the companies an ability to raise capital and affording investors an opportunity to benefit from potential profitability.
The notion of a stock exchange was a success. So much so, it resulted in the Tulip Mania Bubble of 1637. It’s hard to imagine flowers being at the centre of a financial crisis but that is exactly what happened in The Netherlands after contract prices on some bulbs of fashionable tulips reached unsustainably high levels. This is often viewed as the first speculative bubble.
The world of investment has since expanded. More stock exchanges were born, giving rise to new asset classes and ways for investors to make a return. Professional investment became an industry and several high-profile investors have since made their mark in history.
For example, there is Jack Bogle, who founded the Vanguard Group and became known for pioneering low cost investing and essentially developing the concept of passive funds. Philip Fisher, founder of Fisher & Company, became a poster boy for long-term investing and achieved excellent returns in his 70-year career. Famously, he bought Motorola stock in 1955 and held it until his death in 2004, achieving an annual return of 20% in that time. And, of course, there is Warren Buffett, who is widely regarded as one of the most successful stock pickers in all time. $10,000 invested with Berkshire Hathaway in 1965 could be worth more than $165m today.
In 2021, and having lived through at least one financial crisis, the investment industry is a well-known sector. It has also expanded to allow more than the relatively narrow section of the public to operate within and benefit from it. Technology has entered the mix and investors can buy and sell company stock with a few taps of their smartphone, accessing themes of all shapes and sizes.
Where is this heading? Interestingly, the area of ESG investing is potentially taking the industry into a bold new direction. ESG, also known as sustainable or ethical investing, was a fringe investment theme for a long time. Yet, with society increasingly aware and informed on environmental and social issues, investment flows are being impacted. According to data monitor Morningstar, in the first quarter of 2021 alone, sustainable funds in Europe attracted record inflows of €120bn. This meant sustainable fund assets in Europe have reached a record high of €1.3trn. The consideration of positive non-financial impacts to investment decisions – along with the mitigation and awareness of negative repercussions - has the ability to change everything.
An update on the history of investing in another 250 years, for our next anniversary report, could make interesting reading indeed!