We live in the past. Try as we may – if, indeed, we do try – we can’t escape it. The past shapes the present like the remorselessness of a glacier shapes a valley. As a 3,000-year-old struggle set on the eastern shores of the Mediterranean performs its latest cycle of blood-letting and another – slightly less ancient – stains the steppe lands of eastern Europe, we shouldn’t doubt this.
Why then should we expect much different from the world of money? Financial con tricks are older than the Mesopotamian shekel and financial crises, really just con tricks writ very large, are almost equally old. They all come from a generic blueprint, based on leverage, moral hazard and the abuse of other people’s money. And the pattern is repeated; never quite the same, but near enough. The tools John Law used to pump up the Mississippi Company in early 18th century France had much in common with those used by Bernie Cornfeld and his Investors Overseas Services in the late 1960s. Then they were finessed to horrible perfection in an unstable mix labelled ‘collateralised debt obligations’ that ripped apart the financial system in the 2008 sub-prime mortgage crisis.
So, if the present is only ever an echo of the past, we should expect nothing very different from investment returns. They, too, will generate their distinct sonar as the performance of any asset class swings through its familiar staging posts – revive, pump, surge, peak, slide, crash and crumble – and goes from negative, to positive to ludicrous and back again. In that context, investment returns are predictable. We know where they come from and to where they will go. But that’s not quite enough. Infuriatingly, we’re never quite sure where they are in the here and now, or whether this time it really will be different.