successor. Although punctuated with moments of high drama, social and economic change has been slow.
Take Venice, whose trading empire, based on its monopoly of salt in Northern Italy and its near-monopoly of Mediterranean trade routes to India and China, lasted a thousand years. In 1498 Vasco da Gama discovered the passage to India via the Cape of Good Hope, destroying the Venetian monopoly of luxury trade at a stroke and making way for the Spanish, Dutch and British empires of the 16th, 17th and 18th centuries. To the surprise of the Doge and the Great Council, the future wasn’t like the past, and Venice went into the decline we can still see in all its long- faded glory today.
Given that less than three generations separated the last commercial sailing ship and the launch of the nuclear-powered USS Nimitz, you could make a strong case that the pace of change is hotting up. Of course, China is the great change of our times, and the impact will be considerable – but not necessarily in ways we can know or predict.
So being informed is all well and good; but we also have to recognise our “pretensions to knowledge”, as Hayek called them, and work within them.
This is why our investment models are useful but not infallible; helpful but not prescriptive. We consider the likely factors that might drive market behaviour, but our portfolios must accommodate a broad range of potential outcomes and always guard against the unexpected and the unpredictable.
Karl Popper condemned “the poverty of historicism”. This view is neatly encapsulated in that oft-cited investment mantra, “Past performance is not a guide to future performance”. As Russell’s inductivist turkey discovered to his cost, unshakable faith in what has gone before, not to put too fine a point on it, merely invites a stuffing.
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Illustration: Laura Wells
Bertrand Russell’s cautionary tale of the inductivist turkey offers a classic argument against assuming the present will be like the past
“ Learning from experience isn’t foolproof. No matter how many white swans you see, you cannot conclude black swans don’t exist.”