Investing and Learning from the Past – By Phin Upham

September 6, 2013 by  
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By Phin Upham

Why is the U.S. going through an economic slowdown? It can be said that the U.S. has been slowing down since 1980, regardless of the illusory gains in asset valuations. These gains were partly due to reduced volatility, the bubbles which gave the country false hope for productivity gains, and the leverage which compounded the issue. This scenario is very different than the one right after the Great Depression. After WWII, the country’s economy grew at an extremely fast rate.

Good investors often analyze the state of the world by looking into the past. They try to find similar circumstances from which to learn from. For example, Ben Bernanke, Federal Reserve Chairman, has used lessons from the Great Depression to help bring the US out of this current problem, inferring that there is a similarity between both times.

A more appropriate question is: how can we use the past to understand today? The following three quotes help to understand the various views on the matter: a) “Those who forget the past are doomed to repeat it.” b) “Those who live in the past can never move forward.” c) “History doesn’t repeat itself but it rhymes.”

Although good analogies are helpful, it’s important to select the right analogies and figure out the differences between them. They have their limitations.

So what is the most appropriate analogy from history? One example could be the technology bubble in 1999. Even though the bubble burst, the legacy still continues. Another analogy could be the Oil Crisis that led to the 1982 crisis. Or Japan in the 1980s. During that time Japan was able to come out of its crisis by evolving into an exporter to the US. Our crisis could also be compared to the Great Depression, although it might be a better analogy for China at this time.

There are two books that cover this topic perfectly, “The End of the History and the Last Man,” by Francis Fukuyama, and “The Clash of Civilizations,” by Samuel Huntington.  The first book says that democracies do not evolve, but that they are stable, and that the political development of the world was over because democracy was about to be the global rule. According to the first book, very soon democracy will reign worldwide. The second book states that globalization produced the first ever global struggle for power. The West, Islam, and Asia were all battling for the global crown. However, both agree that the current time is very different than anything that has happened in the past. Which author is right? It’s important to know whether we are living in a new age of history.


Phin Upham About the Author: Phin Upham has attended Harvard University and the University of Pennsylvania’s Wharton School of Business. He has worked in macro and illiquid investing and currently works at a family office / hedge fund. For more info visit Phin Upham’s Website or Phin Upham’s Facebook page.


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