Diamonds in English Literature – Twentieth Century Novels and Short Stories

King Solomon’s Mines. H Rider Haggard
The climax of this novel has the heroes finding a secret cave filled with gold, diamonds and other treasure. But they are trapped in the cave when the evil witch doctor closes the heavy stone door on them. I hope I’m not giving too much away by telling you they manage to find a way out, pockets filled with diamonds that allow them to spend the rest of their lives in luxury.

While the idea of lost worlds, vaults filled with treasure and heroes almost getting trapped in them, seems worn-out these days, Haggard invented the genre with this novel. The only precedent I can think of is Shakespeare’s The Tempest. Since this novel was published, many have copied Haggard and at least six films have been made based on this story and its hero, Alan Quartermain.

The Diamond of Kali. O. Henry
A newspaper reporter is reluctantly sent to interview a retired British general. The general regales him with a story about how he seized a blue diamond which had been stolen from an Indian temple of the goddess Kali. Followers of Kali were infamous for their practice of ritual murder. The general relates how he has been attacked on many occasions by members of the Kali cult, sent to retrieve the diamond. The story dissolves into farce as it emerges that the general is paranoid yet has been flaunting the stone in the street for all to see. There are satirical references which would require someone familiar with the history of New York in the early 1900’s to recognise.

In his semi-autobiographical story “The Making of a New Yorker”, O. Henry says that he found the city “as cold, glittering, serene, impossible as a four-carat diamond in a window to a lover outside fingering damply in his pocket his ribbon-counter salary.”

The Diamond as big as the Ritz. F Scott Fitzgerald
In this short story a boy visits his friend’s family during a school holiday. The family live in a hidden valley, kept secret to hide the diamond this story is named after. They are guarded and served by a tribe of negro slaves who were never informed that the North had won the American Civil War. Thanks to the sale of parts of the diamond, the family is fantastically rich and live a life of impossible and impractical luxury.

Their only fear is discovery by the outside world. Once everyone knows there are so many diamonds, the value will drop to nothing and they will be ruined. For this reason they conspire to alter geological survey maps and even shoot down airplanes which happen to stray into their airspace. They keep a collection of pilots whose planes have been shot down, in a pit in the middle of the father’s golf course (which, apart from the pilot pit, has no sand traps or obstacles to spoil a pleasant round of golf).

After enjoying the company of their visitors, the family has them quietly murdered so their secret does not leak out. On the night our hero is supposed to die however, there is an attack on the mansion lead by one pilot who managed to escape.

A dated fantasy, but interesting to read what a writer from a hundred years ago thought was the pinnacle of luxury. As if owning diamonds were not enough, the family patriarch invests the proceeds of the sales of his diamonds into huge quantities of the most valuable thing known to man at the time – radium!

I’m not sure if even a diamond the size of a hotel would be enough to depress diamond prices for much more than a few years, considering that many tons are sold each year to satisfy the world’s demand.

The Diamond of Jeru. Louis L’Amour.
L’Amour is better known for his westerns. This crackerjack story is set deep in the heart of tropical Borneo. A bandit discovers a big black diamond. But instead of cashing it in at the nearest trading post and living happily ever after, he uses it to entice prospectors, travellers and anyone who takes an interest to go with him on his longboat to see the source of the diamond and endless wealth.

Once they reach his bandit kingdom, they are murdered for their belongings and he shrinks their heads to decorate his longhouse. He conducts his business in this way for a number of years until… well, all good things come to an end, but I won’t tell you how.

How many of us are enticed by someone’s attractive quality or the dream they weave for us, so that we follow them into buying things we don’t need, or making bad investments? Another head for them, swinging in the breeze? All of us, I’m sure.

Posted in Investment Concepts | Tagged , , , , , , , , , , , , | Leave a comment

Diamonds in English Literature – Victorian Novelists and Poets

The Diamond Necklace. Thomas Carlyle
At a time when scientists were just beginning to understand gemstones and how they form, writers were experimenting with ideas that we now call ‘new age’. Spiritualism, Eastern mysticism, even fairies were catching not only the public’s attention but also intellectuals.

Thomas Carlyle was a philosopher and writer. The Diamond Necklace is an essay in which he relates the story of the affair of the diamond necklace which the French queen, Marie Antoinette, was accused of stealing. Like many writers at this time, he writes as if the diamonds have feelings and are able to influence human thoughts and actions, even to take actions themselves.

The Moonstone. Wilkie Collins
In 1799 a British soldier kills three temple guards in order to steal a huge yellow diamond from a statue of Vishnu. He returns to England with a fortune but is not accepted into decent society. When he dies the diamond passes to his niece, Rachel Verinder. However the gift is malicious as he knows the stone holds a curse on whoever owns it.

Rachel wears the diamond at her birthday party, at her family’s country estate, but the stone gives a sinister atmosphere as it replaces the ‘life and sparkle’ of the party. That night the diamond disappears and the local police are called in to investigate. They prove to be inept and are replaced by Sergeant Cuff from Scotland Yard. He is sacked when he suspects Rachel organised the theft for the insurance money.

The action moves to London, some people are murdered, others commit suicide. While all these things are going on, three mysterious Indian men lurk in the shadows of nearly every scene. Things become increasingly complicated as the narration moves from one character to another, some of whom may be lying, none of whom knows the full story. Rachel’s boyfriend is suspected of stealing the stone. Eventually Sergeant Cuff returns to the case and solves it.

The Indians turn out to be hereditary priestly guardians of the stone who have been tracking it in England for generations. They take the diamond back to India and return it to their temple.

While Charles Dickens is famous for being the most popular Victorian novelist, this novel was more popular at the time than anything Dickens wrote. It is most notable for being the first detective novel. In establishing the genre, Collins established many tropes which would later become cliches: the country house murder; the bumbling local police; the genius but eccentric detective; the detective who gets pulled off the case but solves it anyway; the red herring and many more. T.S. Eliot described it as “the first, the longest, and the best of modern English detective novels.”

The novel also includes the story of a diamond stolen from an idol. This theme was common in adventure stories involving large gemstones, and it was particularly common since the time gemstones started arriving in large quantities from British India. Yet there is little evidence for it ever happening. There is no tradition for gemstones to be implanted in the eye sockets of Indian statues. Surely the desecration of a religious image important enough to hold such a valuable stone would cause outrage among the community, causing even the colonial authorities to want to track down the perpetrator. In any case, I have not yet found any reliable historical record that shows that such a theft ever took place.

It has been suggested that the notion of damaging a ‘false idol’ is attractive to Protestants, who are mostly opposed to sacred images on the grounds that they are the worshipping of idols. This would explain why the story is so popular, even though it is untrue. Yet it does not explain why there would be a curse attached to the theft. If the god is ‘untrue’, how would it be able to exercise power in the material world? Perhaps some iconoclasts secretly wish for a spiritual element in their lives.

Although the stone in this story is a diamond, it is called the Moonstone. A moonstone is a different type of gemstone, a form of feldspar called adularia. It is notable for having a blue or white flash which is called schiller, or adularescence. it can also have a cat’s eye effect where a line of light reflects from a stone, like you see when light shines on an old dvd.

Collins combined the details of several real diamonds to construct his Moonstone. The Orloff was reputedly stolen from the eye socket of an Indian temple statue. A legend also places the Koh-i-Noor in the third eye of a statue of Shiva at one time although there is, again, no real proof of this. Collins is reported to have seen the 410 carat Pitt diamond, which proved to be a burden to its owner – Pitt complained of spending too much time and money on protecting a “too precious stone”. Finally, the Sancy Diamond, like Collins’ Moonstone, was stolen in an unsolved robbery and found its way back to India when it was purchased in 1965 by Sir Jamsetjee Jeejeebhoy of Bombay.

I wonder if those South Asian nationalists who long for the Koh-i-Noor were inspired by Wilkie Collins’ novel.

The Eustace Diamonds. Anthony Trollope
Lizzie is a high spirited social climber with a habit of telling lies for her own amusement. She manages to marry Sir Florian Eustace, who has a much higher social position and wealth, but is also sickly. He allows her to wear a diamond necklace with a diamond-studded Maltese cross. But he warns her they are a family heirloom, only to be inherited by sons of the Eustace family. Sir Florian dies and Lizzie decides to keep the necklace for herself.

By tradition, the necklace should have gone to John Eustace, Sir Florian’s brother. The family lawyer makes strenuous efforts to retrieve the necklace. But this causes some embarassment to the family as Lizzie is also the mother of Sir Florian’s son, who is also entitled to an inheritance.

In the court case, the family claims the necklace is an heirloom and therefore should be passed down according to tradition, regardless of what the will says. The court decides it is not an heirloom but ‘paraphernalia’ (stuff, things) because gems are likely to be recut and reset and that would strip them of any sentimental value.

Although it is technically a win for Lizzie, the decision diminishes her social status. As the holder of an heirloom of a great family she held a higher social status than being the owner of mere ‘paraphernalia’. Furthermore, her obsession with the diamonds gets in the way of securing a new, high status, husband. The few decent men who she stands a chance of marrying are disgusted by her actions in relation to the jewels.

Afraid that the necklace could get stolen, Lizzie keeps it in a strongbox when she is travelling. One night she returns to her rooms to find the strongbox stolen. Police are called in but she does not reveal to them that she hid the necklace under her pillow and it is still, in fact, in her possession. Some time later the necklace really is stolen, but Lizzie maintains the lie that it was stolen previously. The police investigations gradually reveal the truth, which shames LIzzie further.

The thieves take the necklace to Vienna where it is taken apart and the diamonds recut. It then goes to Hamburg to be made into a new necklace and sold to a Russian princess. LIzzie finds a husband but he has a hidden past. It seems likely this past will catch up with him before long, which will lower Lizzie’s social status even further.

It seems to me the diamond necklace seems to share a similar fate to Lizzie. Her social standing is reduced in stages just as the necklace is degraded in steps, although the losses suffered do not happen simultaneously.

Victorian Poetry

That Nature is a Heraclitean Fire and of the Comfort of the Resurrection. Gerald Manley Hopkins
Heraclitus is known as ‘the weeping philosopher’, because his vision of life is so gloomy. This poem has two parts, beginning with references to clouds and bodily flesh which is to be consumed by worms. The transition is marked by fire, which consumes everything but cannot harm a diamond. In the second part he refers to the resurrection and the diamond as a more permanent state, perhaps our true state. It reads:
In a flash, at a trumpet crash,
I am all at once what Christ is,
since he was what I am, and
This Jack, joke, poor potsherd,
patch, matchwood, immortal diamond,
Is immortal diamond.

Notice here the wordplay in the rhyme of ‘I am, and’; ‘diamond’; and ‘diamond’ and that ‘I am’ is part of the word ‘diamond’ itself. So through the resurrection he becomes immortal, like a diamond.

Hopkins died in 1889 at the age of 44, not long after he wrote this poem. But in contrast to Heraclitus, his last words were: “I am so happy, I am so happy. I loved my life”.

Posted in Investment Concepts | Tagged , , , , , , , , , | Leave a comment

Diamonds in English Literary Culture – Elizabethan Drama

Love’s Labour’s Lost. William Shakespeare
This play has an unusual ending for a Shakespearean comedy. Instead of every character getting married at the end, news of a death causes each couple to separate for a year. In the case of the King of Navarre and the French Princess, the King gives her a gift of diamonds. At the beginning of the final scene, the ladies enter –

Princess: Sweet hearts, we shall be rich ere we depart,
If fairiings come thus plentifully in:
A lady wall’d about with diamonds!
Look you what I have from the loving king.

Rosaline: Madame, came nothing else along with that?

Princess: Nothing but this! yes, as much love in rhyme
As would be cramm’d up in a sheet of paper,
Writ o’ both sides the leaf, margent and all,
That he was fain to seal on Cupid’s name.

So the Princess values the diamonds as a more important sign of the King’s love than the poem he wrote for her. This play was written in 1597, a hundred years after the first diamond engagement ring was given by Archduke Maximillian of Austria to Mary of Burgundy. So the association of diamonds with the promise of marriage seems to be more than an occasional thing among the European elite.

Cymbeline. William Shakespeare
A play set in Roman Britain, it has a complicated plot and critics either love it or hate it. But a diamond ring is at the centre of the plot. Cymbeline is a British chief. His daughter, Imogen falls in love with a Roman, Posthumus. When Cymbeline hears of this he banishes Posthumus. Before Posthumus is banished, he gives Imogen a bracelet and she gives him a diamond ring.

In Rome, Posthumus brags about how loyal Imogen is, just like the diamond he gave her. Jachimo bets with him that he can seduce her. But Posthumus compares the hardness of his diamond to Imogen’s ability to resist Jachimo.

As it happens, Imogen does reject Jachimo, but he manages to learn enough about her for him to pretend that he did, in fact, seduce her. When he hears that Imogen was unfaithful, Posthumus doesn’t think the diamond is so beautiful anymore –

Posthumus: It is a basilisk unto mine eye,
Kills me to look on’t.

But the diamond is also the item which brings the truth to light. Imogen’s father recognises the ring and Jachimo is made to admit his slander. Both woman and diamond are beautiful to Posthumus again.

For Shakespeare, the ideal woman needs to be beautiful, loyal and chaste. These are qualities which he also associates with diamonds.

The Jew of Malta. Christopher Marlowe
Barabas is the Jew of the title. After the Governor of Malta seizes all Jewish property on the island to pay off the Turks and stop them from attacking, Barabas embarks on a course of bloody revenge against the Christians. He starts by using his daughter Abigail to cause a fight which kills both the Governor’s son, Lodowick, and his friend. Abigail was in love with the Lodowick and she converts to Christianity and becomes a nun. Barabas murders her and a lot of priests.

Next, he helps the Turks to capture the city and they appoint him as governor as a reward. But then he switches to the Christian side and plots to kill the Turkish prince and a whole lot of other people too. But the former governor manages to foil the plot and Barabas ends up boiling alive in a vat, which he intended for the Turkish prince. The Turks and the Christians come to terms and agree not to fight with each other again.

Although all of his assets are seized at the beginning of the play, Barabas doesn’t lose his diamonds because he is able to hide them under a floorboard when the Christians come looking for them.

He also refers to Abigail as a diamond:

Lodowick: Well, Barabas, cans’t help me to a diamond?
Barabas: O, sir, your father had my diamonds.
Yet I have one left that will serve your turn:-
I mean my daughter [aside] but ere he shall have her
I’ll sacrifice her on a pile of wood.

So, although Barabas values his daughter as much as his diamonds, he would kill her rather than have her married to a gentile (a non-jew). In fact, he kills her for converting to Christianity.

The Merchant of Venice. William Shakespeare
Bassanio is spendthrift who has wasted his family’s money and is now bankrupt. He needs money to pursue a wealthy heiress, Portia. Antonio is a merchant who hates Jews so much that he bullies Shylock constantly – breaking contracts, slandering him, doing everything he can to make Shylock lose money and reputation, even though he has nothing to gain from doing so. Antonio also does not charge interest on any money he lends, which also enrages Shylock as it means he has to charge a lower interest rate to attract borrowers. Bassanio asks Antonio for money but Antonio’s ships haven’t returned so he has no spare cash. But he offers to guarantee a loan if Bassanio can find a lender.

Shylock agrees to lend the money on condition that if it is not repaid on the due date he can take a pound of Antonio’s flesh. As the loan is interest free, and thinking that his ships will return soon, Antonio agrees to the loan. Bassanio succeeds in courting Portia, but Antonio’s ships are reported as lost so he is unable to pay and Shylock calls in his debt. The matter goes to trial and Portia acts as Antonio’s lawyer. Shylock wins the case and demands his pound of flesh. But Portia points out that the contract only entitles Shylock to Antonio’s flesh, not his blood. Shylock will be executed if Antonio loses a drop of blood from the operation.

Unable to perform the operation without losing his own head, Shylock renounces his claim. But the court proceeds to use further legal contrivances to cause him to lose his claim not only to the money he lent, but all of his assets and he is forced to convert to Christianity. Antonio’s ships finally make it back to Venice and he is wealthy again.

The diamonds come up in a sub-plot. Shylock’s daughter, Jessica, elopes with Lorenzo, one of Antonio’s friends and a Christian. Jessica steals Shylock’s best diamond and the turquoise ring that was given to him by his deceased wife. When he hears that his daughter was seen in Genoa and spent eighty ducats and traded the ring for a monkey, he says famously “I would not have traded it for a wilderness of monkeys”. He continues to lament –

Shylock: Why there, there, there, there! A diamond gone, cost me
two thousand ducats in Frankfort! The curse never fell upon our
nation till now; I never felt it till now. Two thousand ducats in
that, and other precious, precious jewels. I would my daughter
were dead at my feet, and the jewels in her ear; would she were
hearsed at my foot and the ducats in her coffin! No news of
them? Why, so: and I know not what’s spent in the search. Why,
thou – loss upon loss! The thief gone with so much and so much to
find the thief; and no satisfaction, no revenge; nor no ill luck
stirring but what lights on my shoulder; no sighs but of my
breathing; no tears but of my shedding.

Tubal: Yes, other men have ill luck too. Antonio, as I heard in
Genoa, –

Shylock: What, what, what? Ill luck, ill luck?

Tubal: -hath an argosy cast away, coming from Tripolis.

Shylock: I thank God! I thank God! Is it true, is it true?

Jessica has rejected her father in the worst possible way, abusing the memory of his wife and destroying his family’s reputation. There is nothing left for him now but his messenger gives him hope of revenge and with nothing left to lose, Shylock latches on to the news of Antonio’s apparent misfortune and the opportunity to take revenge through that.

In both The Jew of Malta and The Merchant of Venice, jews are associated with diamonds. As a people who were forbidden to own land and who might need to leave their homes on short notice, they needed to be able to store their wealth in easily transportable assets – gold and gems. This is probably one reason why so many jews are involved in the jewellery trade.

Both jews have daughters who fall in love with gentiles, setting their fathers on a course of self-hurting revenge. Barabas causes his daughter’s death, Shylock wishes it. Both daughters convert to Christianity. Elizabethan audiences would have been delighted by the willing conversion of jews, or the idea of it.

 

Posted in Investment Concepts | Tagged , , , , | Leave a comment

Diamond Myths – that De Beers Invented the Engagement Ring

People who say De Beers’ advertising agency is responsible for the tradition of giving a diamond ring to secure a promise of marriage are giving De Beers far too much credit. They point to a famous advertising campaign which started in 1947 by De Beers’ advertising company N. W. Ayer as the source of the diamond engagement ring. But in fact the identification of diamonds with love and the finest female qualities stretches far back in history. Long before the post World War Two era, when the ‘invention’ is said to have taken place.

The identification of rings with love dates back to ancient Rome and the play Curculio (the weevil) written by Plautus in the second century BC. In the play, Phaedromus loves the slave girl Planesium, but he needs money to buy her from her owner, Cappadox. He sends Curculio to borrow the money but Curculio happens to meet a soldier who also wants to buy Planesium. Curculio steals the soldier’s signet ring and he and Phaedromus use it to seal a fake letter to the soldier’s banker to get the money. And so Phaedromus ‘gets the girl’.

Soon the banker and the soldier realise they’ve been swindled and confront Phaedromus. But Planesium recognises the ring and she uses it to prove that she is actually the soldier’s sister. As she is freeborn, Cappadox has to return the money and Planesium marries Phaedromus.

That might not sound very romantic to you, but things were different back then. The Romans used to mercilessly mock Pompey (a great general and politician) when they discovered he was actually in love with his wife, a ridiculous notion in their opinion.

Apart from literature, there is also evidence in the form of inscriptions concerning marriage contracts. By the fourth century AD, Saint Augustine was begging priests to allow marriages for poor people who could not afford rings.

Much was lost to Europe during the early Middle Ages, including a love of diamonds. Ancient peoples rated diamond as the best of all gemstones. But lapidaries written during the Middle Ages rate diamonds seventh or eighth. Scholars have puzzled over this loss in prestige and nobody has a satisfactory reason for it. Some say it was the Christian influence which sought austerity. That may be so, but wouldn’t all gemstones suffer equally from this, not only diamonds? Others say it was the poor quality of the diamonds that were available and the lack of supply due to the wars and social upheavals of the times. But if supply was restricted, wouldn’t that make diamonds even more desirable?

Whether they used diamonds or not, we don’t know for sure, but wedding rings were still an essential part of the Western marriage tradition. In 860, Pope Nicholas I wrote a letter to answer some questions about Western marriages from Boris I of Bulgaria. Importantly the ring is given at the betrothal:

“…our men and women do not wear upon their heads a band of gold, silver, or some other metal when they contract a marriage pact. Instead, after the betrothal is celebrated — which is the promised pact of future marriage made with the consent of both those who contract the pact and those under whose power they are — the betrothed man joins the bride to himself with vows through the finger marked by him with the ring of faith.”

Betrothals were not an essential part of the marriage process, though, they were mostly used when one or both of the partners were underage, or if they were living in different courts while the marriage was being negotiated (we’re still talking about the aristocracy). This was the case until 1215 when Pope Innocent III introduced reforms which included a compulsory cooling off period between the time the marriage was agreed and when it actually took place.

By the Renaissance, wedding rings were being worn set with gemstones, and diamonds were back in fashion. This is noted by Dante in The Divine Comedy in the early fourteenth century. A fifteenth century set of miniatures, painted to celebrate the wedding of Costanzo Sforza and Camilla d’Aragona include one showing the god of marriage, Hymen, wearing a coat decorated with diamond rings standing next to a huge diamond ring holding two torches. There is a verse: 

Two torches in one ring of burning fire,

Two wills, two hearts, two passions,

Are bonded in marriage by a diamond.

The first well recorded engagement ring was given in 1477 by the Archduke Maximillian of Austria to Mary of Burgundy. A letter from her father, Charles the Bold, specified “at the betrothal, your Grace must have a ring set with a diamond and also a gold ring.” In securing Mary’s hand, he also gained the important market city of Bruges in Belgium, which was probably also the location of the invention of faceted diamonds. Previously, diamonds were set in jewellery in their original crystal forms. The diamonds that were set in the ring probably came from Bruges. Numerous other diamond-set wedding rings have survived from those times.

The Protestant Reformation, which started in the early sixteenth century, did not reform the diamond wedding ring tradition. Martin Luther himself, the man who initiated the Reformation, gave his bride one of the fashionable new gemmel (twin) rings. A gemmel ring can be separated into two but can also be combined into one during the wedding ceremony. Sometimes they paired a ruby (representing love) with a diamond (for endurance).

By the seventeenth century, some middle class citizens were able to afford diamonds. The diarist Samuel Pepys wrote in 1668 that his aunt was “mighty proud of her wedding ring lately set with diamonds.” This reflected a greater availability of diamonds to Europe as ships started to sail around Africa to buy luxury items directly from India and other Eastern places.

Since those times styles changed but the basic pairing of a gold ring with one or more diamonds has remained the same. As diamonds became cheaper and more available with the opening up of Brazilian and South African mines, the engagement ring tradition spread to include people from most walks of life. By the 1880’s jewellery trade catalogues showcased solitaire rings from as little as £2 each.

In 1926, Ethel Cushing wrote in ‘Culture and Good Manners’: “An engagement ring is a matter for serious thought on the part of the young man. The best that his pocket can afford is what he desires and a ring that will please his fiancee’s taste is even more important. Either by asking her directly or from someone who knows her preferences he finds out her desire and tries in every way to fulfill it. The solitarie diamond as large and perfect as he could afford has for many years been the standard engagement ring.”

Critics of De Beers say the company invented the diamond engagement ring sometime during the Great Depression or in the years leading to the Second World War, when diamond sales were low. The Great Depression started in 1929, a few years after Cushing wrote the above paragraph. We might not agree with Cushing that young men should spend all their money on a diamond rings. But there is no doubt that the association between marriage, engagement, love, and diamond rings stretches back to ancient times in an unbroken chain.

Posted in Investment Concepts | Tagged , , | Leave a comment

The Fate of the Elderly in Japan

With the breaking down of its traditional society, most elderly Japanese people are facing a lonely end to life. One of the social costs needed to build the economic miracle of the 70’s was developing the ‘nuclear family’. A family consisting of two parents and one or two children. Grandparents were an unnecessary expense. Children were kept to a minimum. The nuclear family was promoted as an ideal, but it is proving to be a nightmare.

Most of us in the English speaking world know that Japan’s failure to increase or even replace its population is one of the main reasons for three decades of economic stagnation. What is less well known is the effects of this social engineering on the elderly.

The New York Times has recently published an article by Norimitsu Onishi which considers two elderly Japanese, a man and a woman living in the same apartment complex, who are ending their lives in loneliness. It is not uncommon for an elderly person to pass away in their apartment and not be found until either the stink becomes obvious to people outside or when their automatic bill payments cease.

The article doesn’t mention what happened to the parents of the two elderly people, whether or not they made an effort to comfort them in the time leading up to their deaths. It is often said that the way you treat your parents will be the way your children will treat you, since children are more likely to follow your example than your advice.

The man featured in the story had a son, but he never had anything to do with him. He made no attempt to contact the son before his death. The woman in the story lost her daughter and husband to cancer when the daughter was in her early 30’s. However she had a stepdaughter who exchanges cards with her on birthdays and New Year’s holidays. Otherwise they are not in contact.

One of their biggest concerns seems to be that nobody will pray for them after they die. I find that astonishing for a society which from the outside seems to be one of the most agnostic.

Despite their loneliness, it seems that most elderly Japanese die at home. In English speaking countries we tend to send them to nursing homes. The nursing home is an uncertain fate. We don’t know for sure how our parents will be treated by the staff. I assume that, even with the strongest intention to be kind, staff are driven by KPIs and simple economics to spend the minimum time on each person under their charge. It isn’t unknown for the aged to die of malnutrition in these homes. Bed sores aren’t uncommon.

Most of us wish to live a long and healthy life. One of the Greek philosophers refused to acknowledge that anyone who is still alive can say they had a happy life. The future is never certain.

We need to prepare a better end for ourselves than the one we have developed for our own parents.

Posted in Investment Concepts | Leave a comment

Money Talks

‘Money talks’ because money is a metaphor, a transfer, and a bridge. Like words and language, money is a storehouse of communally achieved work, skill, and experience. Money, however, is also a specialist technology like writing; and as writing intensifies the visual aspect of speech and order, and from the other social functions. Even today money is a language for translating the work of the farmer into the work of the barber, doctor, engineer, or plumber. As a vast social metaphor, bridge, or translator, money – like writing – speeds up exchange and tightens the bonds of interdependence in any community. It gives great spatial extension and control to political organizations, just as writing does, or the calendar. It is action at a distance, both in space and in time. In a highly literate, fragmented society, ‘Time is money,’ and money is the store of other people’s time and effort.

Marshall McLuhan, Understanding Media, 1964.

Posted in Investment Concepts | Leave a comment

Papa! What’s money?

‘Papa! what’s money?’

The abrupt question had such immediate reference to the subject of Mr Dombey’s thoughts, that Mr Dombey was quite disconcerted.
‘What is money, Paul?’ he answered. ‘Money?’
‘Yes,’ said the child, laying his hands upon the elbows of his little chair, and turning the old face up towards Mr Dombey’s; ‘what is money?’
Mr Dombey was in a difficulty. He would have liked to give him some explanation involving the terms circulating-medium, currency, depreciation of currency, paper, bullion, rates of exchange, value of precious metals in the market, and so forth; but looking down at the little chair, and seeing what a long way down it was, he answered: ‘Gold, and silver, and copper, Guineas, shillings, half-pence. You know what they are?’
‘Oh yes, I know what they are,’ said Paul. ‘I don’t mean that Papa. I mean what’s money after all?’

From Dombey and Son by Charles Dickens.

 

Money is hard to define because it serves two separate functions. It is both a store of value and a measurement of value. It’s a bit like asking ‘what is a litre?’ You can buy milk by the litre and you can store a litre of milk in the fridge, and the meaning of ‘litre’ is different in each case.

Posted in Investment Concepts | Tagged , , | Leave a comment

Try to Avoid Minsky Moments

Hyman Minsky was an economist whose theories were largely ignored during his lifetime and forgotten since his death in the mid 1990’s. They were forgotten until they became glaringly relevant during the financial crisis of 2008.

Even today, his work on financial cycles and fragility hasn’t found its way into economics textbooks, but it’s starting to. His work might have been ignored because of his argumentative personality or maybe his ethnicity excluded him from being fully accepted among the elite of economics theorists. I suspect the real reason was that his work went against the thinking of the time, which imagined prosperity without end and demanded freeing the banks and other financial institutions from any restraint.

From what I’ve been able to learn, Minsky’s big idea was that banks and other lenders become increasingly reckless until asset prices eventually collapse. We saw this in the early 2000s when a boom in the US property market was perpetuated by so-called NINJA loans where the applicant had no income, no job and no assets. But immediately the crisis started, getting a bank to lend money was like pulling teeth.

One lesson from this, for any financial system, is that banks should be more conservative when the market is hot, but more liberal in the aftermath of a crisis. That’s not happening in Australia, where the banks have had to increase their capital following the Murray Inquiry. This means they will have to be even more careful about lending money than they are now. So it’s going to be a longer recession here in Australia than it needs to be.

The lesson for me is to take notice when the banks start making it easier to get home loans. Australian banks never offered NINJA loans but there were low doc and no doc loans offered (requiring little or no documentation from the borrower to prove their ability to pay). Next time round they will use different names for these easy loans, it’s a sign the market is topping.

Of course, Minsky wasn’t the first person to notice market cycles. The ancient Romans knew about and documented several. Before the Romans, the ancient Egyptians and Babylonians institutionalised market cycles with their ‘jubilee’ system. A jubilee occurs every 50 years. To mark the jubilee, the Pharoah forgave all debt. If you owed someone money, they could no longer collect it. In this way the market cycles were controlled and predictable.

So Minsky didn’t invent the market cycle, his big idea was fragility. He noticed that the longer the cycle continued and the looser lending practices became, the more fragile the overall market became. So, the longer the cycle and the more stable the system appears to be, the worse it will be when it collapses. Have you ever seen a big tree that got blown over in a storm revealing the termites and fungus that have eaten it out from inside? Me either, but there’s an analogy for you.

How can I apply this idea to trading? What about a company that has long been considered a ‘blue chip’? The share price has risen steadily over many years with a stable board drawn from the elite business circles. Perhaps they’re a bit lazy about defending their interests from disruptors who want to eat their lunch? Perhaps their systems are a bit calcified? Perhaps they’re hiding a few embarassing problems from their shareholders? I think it’s better to buy a good company a little while after it’s started to rise than a famous company many years into its dominance.

For the longest time, Australian banks have been seen as the safe stock market investment. They’re the anchor of any superannuation portfolio, promising a guaranteed dividend. But since Murray is demanding tighter capital adequacy, miners and retailers are doing it tough and the Sydney housing market is looking a bit toppy – maybe now isn’t the time to be buying banks. I hope I’m wrong about that, I bought a fair slice of bank shares just before I came across Minsky’s theories.

Posted in Investment Concepts | Tagged , , | Leave a comment

002 Cognitive Bias: Mental Accounting

Notes from Think Like the Great Investors by Colin Nicholson:

New investors are always looking for a guru or a perfect system to tell them what to invest in. This is flawed because no system is perfect all the time and nobody knows their investment needs better than themselves. The path to successful investing lies within us.

The world is hugely complicated. One way of dealing with the complexity is to put things into categories. This simplifies things by breaking them down into simpler parts. We do this with budgetting, but putting money into categories or accounts makes us see it differently, even though one dollar is the same as any other.

Some people identify some of their funds as “money I can afford to lose” in fact, it is no less valuable than money they can’t afford to lose, but they treat it differently to rationalise bad investment behaviour. When we are up, we consider it ‘the market’s money’ and use that as an excuse not to sell, taking more risk than we would if the stock fell straight after buying. An example is where an investor has bought a stock at $1 and it rises to $2. He will say that he has made $1 profit. If the stock later falls by 20c, he will say that he made 80c profit. In fact he has lost the 20c he would have made if he sold the stock when it was trading at $2.

Your paper profits are real money and you need to protect them as much as if it is money in the bank.

Some strategies to overcome mental accounting are:

  • Revalue each stock at its current price, forget about the price you paid for it.
  • Restart your records each year.
  • Plot the value of your portfolio on a chart so you can see what level it has reached.
  • Take some profit off the table.
  • Write a six monthly report on your portfolio’s performance.
Posted in Investment Concepts | Tagged , , | Leave a comment

001 Cognitive Bias: Overconfidence

Notes from Think Like the Great Investors by Colin Nicholson:

Studies have shown that we are more likely to be confident when we try to estimate something when that thing is difficult to estimate than when it is comparatively easy. An example of this is the fair value of a stock. The reason for this is because our brains simplify the task by focussing only on one or two things and not taking account of the many factors which drive a share’s price.

We tend to be overconfident when the confidence of the general community is high, such as at the peak of a bull market. One way you know that you are at the peak of a bull market is that it’s hard to find someone who isn’t bullish, or when those who aren’t bullish are ridiculed or ignored.

Lack of expertise – Students leaving an exam centre were asked to predict their results. Those who said they didn’t study (and therefore scored badly) expected higher grades than they were actually awarded. Those who said they studied did better at predicting what their final score would be.

Hubris – Those who become experts in a particular field quickly get used to the situation where the people they mostly deal with don’t know as much as them. This causes them to become arrogant about their abilities, not only in their field of expertise, but in other areas in general.

Confirmation bias – Humans tend to seek out information that supports their decisions and ignore that which doesn’t. If you can’t find any reasons against an investment decision then you haven’t searched hard enough to find them. The best decisions are usually the ones you have agonised over the most to get right. There is little profit in easy decisions that are obvious to all.

Selective memory – It is more pleasant to remember and talk about our successes than our failures. So we develop an unbalanced view of how good an investor we are. This reinforces our feelings of superiority and hubris. Keeping good records can help with this.

The notion that more information is better is an illusion. What helps us is not how much information we have but identifying which of it is useful and valid.

Availability bias – We most strongly recall and are influenced by those situations which:

  • happened to us personally or to people close to us;
  • are very shocking; and
  • happened most recently.

These influences lead to poor judgement because of:

  • small sample size;
  • lack of proportion; and
  • we are blinded to what the true probability is.

Some strategies to overcome overconfidence:

  • Seek out contrary views.
  • Concentrate on the critical information, not all the information.
  • Focus on a few stocks rather than many.
  • Keep good records and an investment journal listing reasons why you bought and why you sold and any lessons.
Posted in Investment Concepts | Tagged , | Leave a comment