Tech Stock Bubbles In the 17th Century

day to day. So I like that we got a chance to actually talk about what's happening right now, give the listeners something useful. I really dispute the notion that we talked about esoteric stuff, But as I say that, I realized that I'm about to start talking about esoteric stuff. Well that podcast about Cracy Crazy, do you know that? Do you know what our podcast is called Odd Thoughts,

But that's about bond trading? Okay, yeah, but we all know. Okay, that episode about tech stocks got me thinking about I guess companies and company earnings throughout history, and I was sort of thinking on a very meta level, almost every company is a tech stock, right because winners throughout history are companies that have either invented new technology or used it to the best effect. Right, Yeah, absolutely, And I think Lee made that point as well, that really we're

not seeing an emergence of tech stocks per se. What we're seeing is an incredible use of technology across a range of industries that allows essentially capital to have incredible leverage over labor. And what we call tech stocks like your Netflix is and your facebooks are really the companies that are at the most extreme dream and of being able to get incredible amounts of output without that much

that many people working for them exactly. So after I started thinking about that, I started thinking about what a you know, tech stock per se would look like, say a hundred or two hundred or three hundred years ago, Like would it be a company that I don't know was inventing like new methods of producing railroad spikes or you know, something like that. Would that be considered a technology company and would investors react to it in a

similar way that they would to a Facebook or an Amazon. Now, luckily for us, there's someone out there who thinks a lot about this, so that we don't have to Um and his name is Jamie Catherwood. A lot of people might know him as finance history guy. Uh. Yeah, there's he's on Twitter, he's on Medium, and he's always producing

these amazing articles about incredible episodes from financial history. I saw he tweeted something I think it was just yesterday about the I p O of the Guinness Beer Company and how people talked about that and how oversubscribed it was and that was in there. And so looking back at financial history, you really do. It's it's sort of confirms I think what is one of our general themes

that to some extent nothing ever changes. And so Mania is about what we call tech stocks today presumably have many echoes in the past as well, exactly, and so we're going to talk about exactly those echoes. And I should just say that Jamie has also been a multiple listener request for an All Thoughts interview, So I'm glad we're finally making it happen. Uh. Jamie Catherwood, a k a. Finance history Guy. His real life job as an analyst over at Arthur J. Gallagher and Company. Jamie, it's so

good to have you on. Thank you so much for having me. So I guess just to begin with, I'd be really curious to get some insight into how you became finance history guy and what exactly piqued your interest in, you know, going back to stories from the sixteen hundreds and even earlier to talk about finance and investing. Yeah, so I've always been a history that um I did history as my major at King's College, London, and I

became interested in finance. And after joining Twitter, I saw that a ton of people were putting out content related to you know, just to investing finance in general, but no one had kind of focused on history itself and just financial history. So I figured I can't compete with the people who have been doing finance for decades or investing and you know, much smarter than I am. But I can bring the history aspect because that's what I kind of know. So it was just kind of finding

my own niche. And I'm lucky that no one else was doing it because if they were, I'm sure it wouldn't have worked out as well for me. Because there's some really good writers out there on Twitter. I like that this This goes to my theory of life alpha of the idea of finding some profitable niche to exploit that other people aren't doing and sort of putting yourself out there and uh yeah, making hay in a way

that others aren't very comparable to investing alpha. Um, do you find that it benefits you to study history in your day to day career as an analyst, as an observer of the market today, certainly, I mean it's I even I get tired of hearing it. But you know, people say the more things change is the more they

stay the same, But it is true. It's I mean, as we'll talk about today, the kind of tech hype in the sixteen nineties, it's a kind of good reminder to not get caught up with the latest fat and I think that whatever everyone's talking about is going to be the next big thing, because when you study history, you're looking at I mean, I did one article on

active investing in the Roman Empire. You can kind of see that these fads quickly go away, and so don't change what your overall strategy is just because there's some hot new stock or sector or technology, because odds are that's just going to be something that someone's going to write about in two hundred years. The next finance history guy on Medium, right or on Twitter. Um, so Jamie, let's talk about whatever they're posting on but they're just

gonna wire directly into our brains. That's probably more likely download it. Yeah. So Jamie, let's talk about what a tech stock might have looked like in say, the sixteen hundreds. I sort of alluded to it in the intro, but I guess to some extent, every company is sort of about technological innovation, but in the sixteen hundreds, technological innovation would look very different to what we think about today. Yeah.

So the sixteen nineties was kind of known as a I. P O bubble in London on the London Stock Exchange. Some people call it a tech bubble and some people I mean nerdy financial historians. And basically what spurred this kind of hype around tech stocks in that day was there's two factors. One was the Nine Years War was going on, which restricted trade with other nations, and so any capital that investors wanted to deploy they kind of

had to turn inward and invest within Britain. So when they're looking for new opportunities, they stumbled upon new joint stock companies that were starting to form more quickly. Than before. And there was one quote from a guy who started writing a sort of bi weekly financial markets review who said, a great many stocks have arisen since this war with

France for trade being obstructed at sea. A few that have money, we're willing it to lie idle, and a great many found that they could employ their money more easily and joint dock companies than in laying out the same in lands, houses or commodities. So I thought that was kind of interesting that he was pointing out that it's easier to invest in these new text docs than other asset classes. But what really set off the hype was the success of a treasure hunt by Sir William Phipps.

He was actually eventually the first governor of the Massachusetts Bay Colony, which is kind of interesting, and he oversaw the Salem which trials, but he went out and convinced a duke in England he could kind of think of as like a VC firm in the modern day, to

invest in his voyage to go find some treasure. And the first time he failed, but then he came back, got more financing, went back out, and he had just heard rumors of some sunken treasure ship in the Caribbean and he goes out finds it and he hauls up thirty two tons of treasure, which I can't even begin to kind of wrap my head around, and brings it back and the investors received a ten thousand percent return,

which is just unbelievable. And as soon as that happened, that kind of just sparked a menia because dozens of new companies started forming to either provide the technology to retrieve treasures. So that was the kind of hype tech stock of the day. It was these diving companies that had either suits or other diving apparatus is and you just have to look up the drawings of these because

they're insane. There's one was like the Edmund Halle bell, and it was this weird contraption where they would lower you down into the water and like this bell, but trap air so that divers could stay down longer and search for treasure. And so all these companies form basically promising investors and one of the prospective is for this company.

One of these companies actually put in the prospectives. We promised a hundred percent return to investors, and their whole pitch was, you know, oh, look at that guy you know who made ten percent on the Phipps treasure hunt. This technology will do even better or just the same, And so investors just poured money into these stocks and it didn't it didn't end up so well. Um, but

there was Yeah, it was just crazy there. From sixteen seventy two to nine there were five patents related to diving technology, and then in just two years from six there were seventeen patents filed. And it was of all patents filed in those two years, So the kind of hype was clear. I already loved this story so much.

First of all, it would just have never occurred to me that in the sixteen hundred they had any technology, no matter how rudimentary, that could get lower someone to the bottom of the sea for long enough to dig up treasure. I would have just assumed then the six dreds there was no way to do this. So the fact that they invented various ways to do that, that

already blows my mind. What were the returns like? So obviously I don't you know, I don't think I'm going out on a limb much to imagine that most of these endeavors did not produce ten thousand percent returns and

probably many of them didn't return anything like that. Is there a distribution of returns though that like that one can collate that sort of resemble, you know, like if you talk about you compared the initial funding to kind of like a VC funding, and vcs sort of they famously are willing to take losses on a lot of their investments to hit the occasional home run or a mega home run. Like if you have a portfolio that

has Facebook and then fifty losers, you're totally fine. So is there was there a sort of power law distribution like that to the companies that were able to successfully uh dig up or find sunken treasure. So obviously we're kind of restricted by what has survived since in terms of sources, there's a there's not a good data set exactly.

And uh so from what I've read, there was a nineteenth century historian who wrote a like really intricate um detailing of all the joint stock companies of that day, and he wrote, I have a quote that none of the companies or expeditions because in addition to just the diving technology companies, there were a lot of groups of actual treasure hunters who would set up like the Jamie Catherwood Exploration Company and they were just dedicated to treasure hunting.

But this nineteenth century historians said that none of these companies or expeditions were successful. Indeed, the only finds consisted of a few cannons at the bottom of the sea. So it doesn't sound like any of them really worked out. Um, and so I wish it was more optimistic, but it sounds like Phips kind of got the job done and then no one could replicate his success. Another fault question

that I have related to this. So you talked about the mania, You talked about them, the surge and patents

that were associated with the treasure hunting diving technology. One of the things that we see in modern bubbles and even tech is you start with something like Okay, a few vcs invest in tech companies, and then a few years later, I'm getting ads on my iPhone on Instagram to say invest in tech startups for as little as ten dollars a month, and people find a way to democratize what had been this sort of very exclusive and

difficult way to invest. Talk to me about the mass participation and the degree to which this extended beyond the vcas and the dukes to normal people who just wanted to put some money down in search of massive returns. Yeah, so it definitely was a wider spread investment than just these vcs as we're calling them, because these companies are formed as joint stock companies and so the average investor

was able to put their money into these companies. Obviously that probably wasn't necessarily a benefit in hindsight once the kind of crash came, but yeah, it was definitely a widespread, uh sort of speculative mania. And there were and there was an account later of the Treasury, the British Treasury starting a lottery system because that's how they did a lot of their financing in the day, because they wanted to kind of pull the money away from these speculative

joint stocks into funds that benefit the government. And there was an analysis done that showed that something like eighties seven percent of the money that in your average investor had been putting into these joint stock tech companies then went to these lotteries. And I thought that was interesting because it was kind of just proving that investors didn't have a specific you know, dedication to these tech stocks.

They were just going wherever offered the higher return. So as soon as these lotteries offered a better chance at that, they ditched the joint stock companies and kind of forgot about them. So, Jamie, the natural route for a lot of companies, and tech companies in particular, is that you're a startup and you get started out of someone's garage, and then you get venture capital funds, and then you eventually do a listing and a big I p O

and then you have public investors. You wrote a really interesting post, I think it was back in October about how a lot of the companies um that happened I p O ing in the US over the past year have basically never produced a profit, and a lot of those companies would be tech companies that investors are just sort of betting on on the off chance that they will get a big payoff eventually. What's the historic parallel to those sorts of I p o s that you

were looking at. Yeah, So in the early nineteen hundreds, there was a rubber boom, if you can believe it, and essentially these rubber plantations in Malaysia were they're like the largest plantation I believe is in Malaysia. There's one in Brazil, so I might botch which one it was, but closed down, which meant that the supply of rubber

was going down and prices were shooting up. And so as investors saw that, they did what they always do and kind of flocked to rubber as their new hot, hot fad, and a lot of companies in England, interestingly not Malaysia, were setting up rubber plantations, or at least claiming that they were in Malaysia to take advantage of this rubber boom, and investors just poured money into it, and companies were listing their shares on the market without

even actually having a plantation. Yet. There was one company that put in their prospectives that they would basically offer the secrets of the company in exchange for a direct buyout of the whole company. So I don't know, I wouldn't say that was reassuring if you were just investing

that the founders were looking to get out so quickly. Um, But yeah, there's some guy who went to Malaysia and basically they're just like these stubs of rubber tree, whatever the tree is that they're planting on these plantations and there was nothing even growing. And the perspectuses back at home in England were saying that they had, you know, these really high yielding plantations and everything was going great, but in reality there was nothing even set up in Malaysia.

So yeah, it was a case of kind of just listing a prospectus to raise money or just you know, ly in your pockets before doing any actual work. And no one was doing real due diligence. So look for a while, I'm curious about that because you're talking about the perspectuses of this rubber company. You mentioned the perspectuses of this uh, the companies that the Sunken Treasure I

mentioned in the intro. You tweeted about the prospectus and the initial subscribe subscribe over subscription of the Guinness I p O. Was there any when we think about perspectus is today and companies file s one FI length and they're all very regulated and there's very sort of strict patterns about you talk about this and then you lay out the balance sheet and then you lay out the income statements. Was there any sort of common approach to laying out a prospectus or was it in those days,

basically you just write whatever you want. I'm not an expert on this, but from what I've seen, that kind of I mean, I can't imagine a government that was regulating perspectuses would let someone say I'll give you the secrets to the company if you buy me out, um, and I wouldn't say that. Looking at various perspectuses, there seemed to be a kind of common format or approach. So it certainly didn't seem to me that there is any regulation of it. But I could read something that

proves proves me wrong. So what are some of your other favorite finance stories, especially anything related to sort of tech or mania, which seems to be what we're what we're discussing here. I gotta say reference the Guinness example. That's probably one of my favorite examples a kind of a mania in history, because it was just insane that sources describing what went down on the actual day of the quote I p O. I mean, the economist said something like it's a day that witnesses will never forget.

And then another newspaper the time called the Spectator said that the scene that took place on Saturday outside of Barings Bank is enough to show that a speculative mania

exists or something along those lines. And as you mentioned, I tweeted all these takes at the time by analysts or you know, writers at The Economist and this other newspaper kind of taking their different views of the valuation of the company because a lot of investors were getting hyped up around Guinnesses ramped up production and there I guess new technology to bring it back to tech that was allowing them to produce more at a lower cost.

But then some analysts were saying that was really just because the materials had gotten cheaper, and so that was interesting.

But in terms of mania, when the Guinness I p O actually took place, the Bearings Bank basically came out and said that it would be open for thirty six hours, and investors who wanted to get in on the action had to come with their subscription form and deliver it to the bank, all signed and everything, and the bank only ended up being open for three hours because there was such a mad rush and they had to call in a special police brigade to police the area because

investors were going crazy. They had to barricade the doors so they couldn't let anyone in but people still wanted to get their shares in. But obviously this was way before anything electronics, so they still had to deliver their

subscription form. So seen as there was police lining the perimeter and the doors were barricaded, investors started tying their subscription forms two rocks and literally throwing themselves at the opportunity by launching these rocks with their subscription forms like through the windows of Barings Bank in order to get their shares in. Uh So that is I don't know.

To me, that's one of the craziest stories, because you just imagine some i PO today and investors sitting in Manhattan somewhere just launching rocks through banks windows and buy shares.

That kind of reminds me, Tracy. Remember when we did the episode about the housing bubble in Florida like a hundred years ago, and we talked about the binder boys, just like we're out on the street in Florida who just had these binders full of properties for sale and these manias in essentially in the days before electronic trading, when things had to be done physically, when you had these manias that people actually had together in one place. In the case of Miami was just sort of gathering

out on the street. They're actually like all kinds of traffic, traffic jams and other stuff like that, because essentially everyone was out in the street trying to buy property. And so it very much reminds me of that that sometimes these things get so intense that they start to like break down the physical infrastructure of the place where transactions

are done. Yeah. Um, it makes you think a lot about like whether current manias are more difficult to spot because they don't happen in some physical capacity, Like you don't have a bunch of people standing outside the New York Stock Exchange hurling rocks in order to get their

share subscriptions. But I but I did think of that that the the analogy would be remember in late seventeen when all the cryptocurrency exchanges couldn't handle the traffic load and start going down right, and they would have these crashes and people complained that their trades weren't going through. So even though it's digital, I do think that there's some interesting analogies where you just get such a rush. In that case, it was digital infrastructure that they were

just buckling onto the load. Yeah, so maybe when demand starts to overload the market infrastructure. That's a bad sign. Um. But we're speaking over Jamie, so I feel bad, Jamie. Um. There's one thing that you pointed out in your your post about Guinness, which was that, you know, when this all was happening in the late eighteen hundreds, there were a bunch of commentators who were watching this from afar and going, oh, yeah, this is crazy and it's definitely

a speculative mania, and yet it's still happened. Why was that. That was the craziest part to me is that we're you know, I'm writing today, you know, all high and mighty, like, look at these it's you know, launching rocks through windows. But people were saying the same thing at the time,

which it was kind of depressing but also fascinating. Depressing in the sense that we're still having those same sorts of manias in different ways today, but also just that we kind of always assume that in the past when these manias happened, everyone was caught up in the mania. But there were people who sound just like I would write today, saying that this is absolutely ridiculous. You know, there's no guarantee that this company is gonna be a

success and its valuation is ridiculous. UM. And so that just really that's particular Spectator article UM really stood out to me because the guy had some really good quotes about how the public will public will never listen to someone talking about fraud when returns are good, just as a soldier will never listen to a thirsty soldier will never listen to someone talk about poisoned water. Something along

those lines. Basically, you know, it falls on deaf ears because if there's returns, you're gonna go for it, and if you're some parched soldier in the middle of the desert, you're going to drink the water no matter what someone

tells you. Definitely, the idea of nobody wanting to hear about fraud in good time, it definitely falls with that category of the more things change, the more things stay the same, Jamie, before we go, I do think there are probably a lot of listeners that are interested in economic history, and probably people are sorry financial history, and people have read a lot of books. But do you have any favorite resource material for what you learn that

maybe people haven't heard about that they should check out. UM. The easiest way would be to plug my own own account and follow me. But outside of that, um archive dot org is just an unreal resource that I've kind of recently stumbled a upon. You can search like stock market and then do sort by date published, and they have like source material archived from literally like six hundred seventeen hundreds, and it's just full PDFs that you can look at and go through. So if that sounds interesting

to you, then that would be my recommendation. But there's probably a lot of people who won't do that. Yeah, that's safe to say. Yeah, but I find that stuff fascinating. That's where I find a lot of these kind of interesting stories and quotes is just from reading the stuff written at the time. All right, But but the best way is for people to follow you on Twitter. Right, Yeah, that would be my recommendation, but I'm biased, all right. Jamie Catherwood, a k A finance history guy, thank you

so much for coming on. Finally. I'm glad we could make it happen. Yeah, thank you so much so, Joe. I found that conversation really, really great, and I just love the notion that you know, we're sat here in the year nineteen. I had to think about that for a second, it is, and we're talking about technology like social media and you know, microchips and things like that.

But in the sixteen hundreds, there were a bunch of people sitting around, you know, tables in London thinking about technology as a diving bell that would let them go underwater and search for sunken treasure. Yeah, the first thing I'm gonna do after I get out of the studio here is go google images of the diving bell, because I still find it almost unfathomable that in the sixteen hundreds they created ways for people to get to the bottom of the sea and be able to breathe. So

that's I wonder how many people died. You have to wonder in those endeavors. But anyway, because that's the first thing I'm curious about, because I still almost find it impossible to believe. But there are I mean, there's this sort of thing that seems to happen in all these instances of big technology breakthroughs, which is you get maybe you know one person who innovates and I think Jamie has made this point on his on his Medium page, but you get one innovator, then you get a bunch

of imitators. And then inevitably you get a bunch of fraudsters who just sort of mess up the whole space and make it a lot more dangerous for all investors, and there's sort of an oversupply, and it becomes very, very difficult for investors to pick out who is actually doing something substantive in the space. It really does seem to be the classic pattern of history in so many ways. I mean, again not to just keep going back to the crypto bubble, but you couldn't have a more perfect

sort of description of what happened there. Some people earlier early on tinker as computer scientists, uh, sort of radical anarchists, and then by the end essentially like pure scammers and fraudsters. And just as the mania grew and the demand for supply grows up or accelerate, people will just put up any sort of paper or coins because they know there will be a thirst for it. Yeah, start Bucks. What

was that? Um, sorry, we did an episode on that. Yeah, we did know, we were we were among the early crowd. Was just you know, we were not in it for the money, We were not scammers, and you were in it for the technology. Okay. On a serious note, though, I thought, you know, the good news is the good news is uh Stalwart Bucks never they they never acquired any monetary value relation. So the good news is no

one right lost anything. Okay, that's all I wanted to say. Okay, I wanted to pay you a compliment and say that I thought your observation about um market manias and how you know, again going back to crypto, but when we saw a lot of the blockchains and the exchanges being sort of overwhelmed by demand, that might have been a

good indication of basically a speculative mania taking place. And I think, I think you're onto something because I think if the existing infrastructure can't handle demand for a particular security, then it's usually a good sign that something is out of balance in the market. Yeah, I mean you see this pattern pattern repeat in thousand. A lot of the online brokerages the people are using to trade tech stocks or head regular outages. You can go back and look

at those, going back to the Florida bubble. Just even the trains to get into Florida started getting too crowded because so many people are traveling down there. So whether it's digital in person or people throwing rocks into a window because they can't get into the bank. I do think that, um, it's one of those telltale signs that mania is afoot. All right, this has been another episode

of the Odd Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wisn'hal. You can follow me on Twitter at the Stalwart. And you should definitely follow our guest today on Twitter because we keep referencing how great his Twitter account is and his Medium account, Jamie Catherwood. He's JFC Underscore three Underscore. Check him out on Twitter, and you should definitely follow

our producer to fur Foreheads. He's at foreheads T, as well as the Bloomberg head of podcast, Princesca Leavy at Francesca Today. Thanks for listening.