Neurologist turned investment advisor William J. Bernstein argues successful investing includes a firm understanding of financial history. One of the most brilliant men the world has known, Sir Isaac Newton, lost his fortune during the South Sea Bubble. The South Sea Company garnered a monopoly on English trade with the New World. Unfortunately the company never made much money, a fact not disclosed to investors. Lured by the thoughts of gold and silver flooding into England from Mexico and South America, investors bid up South Sea stock shares. An early shareholder, Newton made a chunk of money on his original stake. But he jumped back with both feet and lost the 2014 equivalent of over $400 million. Newton could determine movement of stars could but not the madness of men.
Yes itís been quite a summer. 2014 saw the Battle of Atlantaís sesquicentennial anniversary along with the 100 year and 70 year anniversaries of the beginning of World War One and D-Day. Donít ignore the financial link among these events. In the summer of 1864, William Tecumseh Shermanís Army of the Tennessee was bogged down outside Atlanta. Under Confederate general Joseph Johnsonís expert delaying actions Sherman could not break the siege of Atlanta not unlike the Army of the Potomac outside Richmond and Petersburg.
With casualties rising and two armies locked in stalemates, Abraham Lincolnís re-election appeared doomed. Jefferson Davis came to the rescue. Davis never liked Johnson and replaced him with John Bell Hood, a foolish trade ranking with the Cubs swapping Lou Brock for the Cardinalsí Ernie Broglio. Hood abandoned Johnsonís strategy and went on the offensive. If you saw Gone with the Wind you know how the story ends. After losing every battle, Hood abandoned the city and the Atlanta mayor surrendered on September 1st. Lincolnís popularity soared just in time for the November elections where he trounced the peace candidate General George McClellan.
Lincolnís re-election meant our Civil War would continue and the country would be reunited. If Lincoln had lost, McClellan surely would have struck a deal separating the states. Fast forward to 1914 and 1944, we will never know but it is reasonable to assume a United States of America was much more formidable than two separate nations. Defeating Germany in 1918 and amassing a huge army for a cross Channel invasion would have been a stretch without the United States of America.
With one strong nation, rather than two separate entities, we became the worldís leading economy and the worldís reserve currency. With these come responsibilities, any politician who thinks we can default on our debt is a financial fool, regardless if they are Democrats, Republicans or Libertarians. Americans benefit mightily from the economic tailwind set in motion, in no small part, by actions 150 years ago. Decisions made today have ramifications long down the road. If someone reminds you to plan for your retirement they ainít whistling Dixie.
Buz Livingston is a history geek and even though he is a fee-only certified financial planner this should not be considered personal advice. For specific recommendations visit us online at livingstonfinancial.net or at our new office in Redfish Village, 2050 Scenic 30A, M-1 Unit 230. Follow us @BuzLivingston.