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Harsh Vora @harsh_vora
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Midway through Ronald Kahn's wonderful book 'The Future of Investment Management'.

The 1st half is solely focused on the evolution of investment management through the last 4 millennia.

And rightly so. Because #history matters.

A quick summary below.

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Investing as we know it today did not exist before the stock market crash of 1929 & the Great Depression that followed.

Slack regulations, inadequate company disclosures & the general inability to systematically analyse investments kept most investors out of the market.
This state of affairs, however, was soon changed by gurus like Graham, Dodd, Markowitz, Sharpe, Burr, Ross, & others who provided a systematic framework to analyse securities, define risk, & efficiently manage portfolios.
But first, some background: The early roots of #investing can be traced back to as far as the pre-historic era, about 4000 yrs ago in Ancient Mesopotamia & Rome.
There is evidence of a rudimentary form of stock market in the Roman Forum, which actively traded liquid shares of Roman publican societies (publicans were ancient equivalents of today's municipalities).
The Dutch East India Company in early 17th century, however, is the earliest known & the most concrete example of a public company whose shares were actively traded in what is known as the *first stock market* of the world (besides Roman forum): Amsterdam Stock Exchange.
The systematic approaches to investing can roughly be divided into 2 steps:

The first step involves a rudimentary understanding of diversification (as evident in the next tweet).

The second step involves the publication of Graham & Dodd's 'Security Analysis' in 1934.
In 1774, the Dutch launched the *world's first mutual fund* (Eendragt Maakt Magt), which primarily invested in foreign government bonds from Denmark, Spain, Germany, Sweden, etc.

Evidently, this was one of the earliest known instances of "diversification" by geography.
The Dutch seemed to understand risk, but not in the sense that Markowitz would come to define (mathematically) 170 years later.

This fund also severely restricted changing portfolio weights, in what can also be termed as the *world's first passive investment strategy*.
Subsequently, in late 1700s, a number of Dutch funds allowed flexibility in managing portfolios, with one of them (Concordia Res Parvae Crescunt) even allowing for investing in securities that could be purchased below intrinsic value.

This was the *world's first value fund*.
In Britain, investment markets did not evolve until the late 1800s because of the Bubble Act of 1720, which required an "act of Parliament" to form a joint stock company.

This act was enacted in response to the South Sea Bubble, which resulted in massive losses to investors.
124 years later, the Joint Stock Companies Act of 1844 reallowed the creation of companies in Britain, kickstarting equity investments.

Britain's first mutual fund (Foreign & Colonial Government Trust ) started not before 1868.

But it still trades today -- the world's oldest.
In the US, investment trusts launched much later, in 1890. The first US open-ended mutual fund, Massachusetts Investors Trust, also still exists today.
One of the main components of investment management is timely access to complete information.

But 1720's Bubble Act considerably reduced incentives to publish stock prices. In 1843, however, @TheEconomist mag started offering monthly list of stocks & bond prices.
This was followed by @ReutersLive in 1851.

A fun fact:

Back in 1850s, Reuters employed more than 200 carrier pigeons to transmit stock price information to investors.

Then came Poor's Publication in 1860 (which combined with Standard Statistics Bureau in 1941) to form S&P.
As mentioned earlier, disclosure regulations did not come into the scene until 1900s. In 1908, the Companies Act (Britain) mandated disclosures in annual reports.

But in the US, companies often kept sales figures hidden from investors, well until the stock market crash of 1929.
This period is what the author calls the beginning of the modern era in investment management.

After the crash of 1929, two US acts -- Securities Act & Securities Exchange Act -- mandated financial statement disclosures & audit.
The (revolutionary) result of these acts was the availability of timely & reliable information about investments.

These developments effectively catalysed a raft of academic research into systematic approaches to #investing.
The first two gurus to contribute to the understanding of modern approaches to systematic investing, of course, were the great Ben Graham & David Dodd, through their publication of 'Security Analysis' in 1934.
Its contributions were 2-fold:

First, the authors argued for the value of rigour & hard work in investment analysis.

Second, they provided a framework to analyse earnings & dividends.

Their work effectively distinguished systematic investing from speculation.
In a now-famous incident, Ben Graham is said to have personally scrutinised the City Hall's records to ascertain the earnings of a utility company.

His findings contradicted the rumours, which claimed that the company's subsidiaries had massive earnings
Graham's 'Security Analysis' encouraged investors to take the same approach to valuing a stock as they would in valuing their own business. Arguably, this was an insight that hugely influenced Graham's most ardent disciple -- none other than @WarrenBuffett .
Graham & Dodds 'Security Analysis' was followed by Burr's 'The Theory of Investment Value' in 1938, which is credited with identifying the commonly used discounted cash flow method of valuing a security.

He also discussed the constant growth model (formalised by Gordon in 1956)
A fun fact: Burr's 'The Theory of Investment Value' was his PhD dissertation, which he sent for publication as a book prior to receiving his degree.

Many publishers rejected it for its heavy focus on math. @Harvard_Press published it only after he agreed to cover printing costs.
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