Revisionist History

It's been a relatively slow holiday week for the financial press. Well, except for the spate of better-than-expected economic news (a robust jobs report, an expanding manufacturing industry, etc.). But that stuff's boring and not really newsworthy anyway, right?

In the spirit of nationalism, patriotism, capitalism, and generally other "isms," we call your attention to the new lineup of Kremlin-sponsored history textbooks set for distribution to Russian schoolchildren next year.

A Do-Over for Russian History?
By Andrew Osborn, The Wall Street Journal (*site requires registration)
https://online.wsj.com/article/SB118367568881058545.html

The bottom line is Putin's vision of Russia is the one that will prevail in textbooks—a history that perpetually derides the west and champions the U.S.S.R. Sure, it's ridiculous. But singling out Russia of revisionism would be a mistake…they just happen to be the most recent example. Open any textbook from any land and you'll find strange biases, overt patriotism, and justifications of conquest through spiritual doctrine of "manifest destiny" (yes, we're talking about you too, America).

Revisionist history is a common practice, and very convenient for political reasons. But it's a dangerous thing for investors. History can be a tremendous guide for investors, but bad perspectives and false data are a serial killer.

First, and rather obviously, you've got to have the facts straight. In fact, just sticking to the facts must be the de facto method for looking at history. Most folks don't realize it, but history is a very shaky thing. It's largely up to the historians to decide the "truth."

What's included—and especially what is excluded—in a historical analysis shapes the perspective on events past and how we think about them. The next time you read a history book, remember it was probably written by some stuffy academic in a tweed jacket who was never even there!

Perhaps even more important is the human need to make the world and historical events intelligible (or coherent) by way of narrative. A history book is a story!—and historical analyses tend to get told as such. But the world is not really that neat and tidy. Generally, it's a multitude of factors (many of which can be completely unrelated) all acting at the same time that shapes history. It's really difficult, if not impossible, to form all that up into a coherent story. Thus, everything is analyzed from a specific perspective for the sake of coherency. And all of that, including the perspective itself, is in the hands of the historian.

Such natural tendencies of re-imagining history cannot work for the investor. Subjective data analysis can sink you. For instance, economic history books will all have differing reasons and triggers for the Great Depression—often reducing the causes to a few key factors. Most of the time, history forgets it was a GLOBAL Depression! What's much more likely is that a number of factors from around the globe triggered the event. But that usually doesn't get written in history books because it's not a good story.

But still, there are many economists today who say we're headed for a "New Depression" based on those faulty history lessons and ramshackle comparisons.

The example of Russian re-visioning is a classic case of what cognitive scientists would call "Regret Shunning." That is, in the interest of the pride of the country, the Russians forget or revision certain aspects of history in order to feel better about themselves.

Investors do this all the time. "Oh, the stock I bought that went down a lot wasn't my fault. My broker told me to buy that one! Yes, but the stock that went way up, well, that was my decision! I'm a genius, don't you see?" If you don't think this happens all the time, ask the Russian historians who claim the downfall of the U.S.S.R. was the "greatest geopolitical catastrophe of all time."

Revising history might be a common political tactic and reminiscent of normal human behavior, but it's deadly for investors. Stay scientific, and stick to the facts.