Reply #56: Pilate Error (Bonner) Past performance is no guide to future performance

[54anickel]

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"Those who do not study history are doomed to repeat it," say earnest history teachers and terminal optimists. But, it's not that easy. Studying history is a little like learning a foreign language; until you really get the hang of it, there are likely to be some misunderstandings. They come, as you might expect, in the compound tenses and subtle, subjunctive moods. The casual reader understands the major verbs, but misses the veiled meaning. He is like a Hudson River hustler trying to do business in Hyderabad - or a man trying to reason with his wife. The words will be deceptively familiar; but he'll miss the real sense of the conversation completely.

On the other hand, cut off from history, the lumpeninvestor is encouraged to not even try. He's supposed to believe that every new day is as detached from the last as Mars is from Jupiter. He is not supposed to notice that they both revolve around the same star, and repeat the same cycles over and over until the crack of doom. Taking the regulators at their word, he sees the planets in heaven and has no reason to think they will ever be anywhere other than where they are right now.

The lumpeninvestor looks at the prices on Wall Street, or those of houses in his neighborhood. Those too must be permanent, he reckons. He has no frame of reference, no theory to tell him otherwise, and no way to make a reasonable guess about where they will be tomorrow. He is as misled as a voter, but he's not the complete moron the authorities make him out to be. Warning an investor not to trust history is like a warning sailor not to go near brothels when he is on shore leave. He'll probably end up there anyway.

Today, the typical stock market investor probably feels as old as Metushélach. He entered the market in the mid-90s. He thinks he's seen it all. The market went up and then went down, didn't it? It should be ready to go up again. He can't help but notice that stock prices have gone up in the last five years, but he's discouraged by the authorities from looking any further. It's not worth the trouble, they tell him. Past performance is no indication of future performance. The past doesn't count. Forget it.

The little bit of recent history he picks up without trying, cheats him. It is as though he had noticed Mars zipping through space, without realizing it is merely retracing its steps from millions of years ago. He hasn't enough history. He has never heard of Copernicus. He thinks Pontius Pilate led a peasant revolt in Mexico. And so, he draws conclusions that are both erroneous and preposterous. Whatever he sees, he can only imagine that nothing like it has ever happened before. History has come to a dead stop. This really is a New Era on Wall Street. He sees Mars heading out into space. And, he imagines himself going where no man has ever gone before... when, actually, he never left home.

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