Fisher Vs. Keynes: Investing Tragedy And Triumph


Irving fisher was born in eighteen sixty seven in the town of saugerties. New york got his phd economics from yale in eighteen ninety one and for most of his adult life he enjoyed this almost unparalleled streak of success. Yeah not just as a great economist but also as an entrepreneur and investor. Tim harford is the author of the data detective. A new book that includes a chapter about irving fisher. He was the basically the inventor of what we now call the rolodex card filing system. That made him a multimillionaire. He was a diet and fitness expert. He published a book called how to live which was the freakonomics of its day. Only sold five hundred thousand copies. He set up the life extension institute. He was a campaigner on prohibition. He was a vegetarian. Assist an astonishing a prolific campaigner and thinker and he made a lot of money in the markets for a while as the stock market in the nineteen twenties was going up and up fisher was investing more and more money into it in fact even though he was already investing a ton of his own money he was also borrowing even more money to invest in stocks so that he could boost his returns fisher was just supremely confident about his forecast that the market would keep going up confident both in his own intelligence and also in the possibility of using data and statistics to predict the future. So that's where irving fisher was right before the crash of nineteen twenty. Nine john maynard. Keynes the other. Great economists of the era got there a little differently. Canes was definitely already considered one of the great economic minds of the time and just like irving fischer canes knew. He was the smartest guy in every room. He walked into same. Yeah me too something. We all share with gains right. But unlike irving fisher john maynard. Keynes had gotten some things wrong. By that point he had been humbled by the market before he had an early investment fund immediately after the first world war that just went went bankrupt and it was fine canes raise more money went back into the market. Got everyone's cashback. Everyone lived happily ever after but he had that experience going. Oh yeah. I thought i was smart on the market. Maybe i'm not smart on the market when the crash of one thousand nine hundred nine arrive. The stock market collapsed more than twenty percent in two days and within three years it had fallen more than eighty nine percent from where it was before the crash. Both and john maynard. Keynes lost a lot of money on their investments in the crash but there is a huge difference in how they responded so after the crash fisher kept doubling down on the same investments. He even kept borrowing money to invest in the same. Losing stocks for example fisher owned stock in a company called remington rand and right before the crash remington rand stock was at fifty eight dollars share but after the crash of two three months it was twenty eight dollars. A share and fisher was borrowing money and buying more shares at twenty eight dollars for years into the crash. It was one dollars a share. That is how to be a millionaire. Lose everything maybe fisher believed that his precious data just could not be wrong or that he could not be wrong or that. His self worth was tied up in this idea that he was right. Whatever the case he couldn't change his mind and he lost everything. Canes was different kane street at his failures as a chance to learn a chance to improve his process up to the crash he'd been investing based on his ability to predict the ups and downs of the whole economy. But after the crash he decided that that was just too hard to unknowable so he changed his strategy to investing in companies that he believed had good management and he thought would go up over time no matter what the overall economy was doing. Canes made a fortune for himself and for the endowment of king's college us money he was managing one of the things he said when he was trying to raise money from his own father was win or lose. This high stakes gaming amuses me. That's that's just an amazing linked to say when you're trying to persuade someone to give you money and yet in the end it helps because he just didn't take it so personally for the past few decades. A psychologist named philip tat. Lock has studied the behaviors that lead to better forecasting being very precise predictions constantly. Checking to see if your forecasts or proving true and updating your forecast if they are not true all of these make you a better forecaster. But tim says if he had to summarize. All of this research on a bumper sticker. Full cost is better when they recognized. They might be wrong and they are asking themselves. What am i missing. What perspective having tie considered. Who haven't i talked to that sort of almost paranoid suspicion that you might have messed up. And the willingness to change your mind that leads to much better forecasting you know it sounds so obvious. Just be able to change your mind and yet in practice. People really struggle to change their minds especially about their deeply held beliefs. That irving fisher could not change his mind and john maynard. Keynes could ended up making all the difference in how they lived the rest of their lives a few months after the second world war at fissuring canes both died fisher was alone and nearly bankrupt hitting bailed out by his millionaire sister-in-law and he'd completely lost his reputation as a result of his failed forecast. It's such a tragic end to a great career. Canes died a millionaire the most famous and celebrated economists on the planet and there is a quote that sometimes gets attributed to canes that. Tim also likes to remember him by. He probably never said it but he lifted which is when the facts change. I change my

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