The Folly of Active Investing

The Great Mirror of Folly
The Great Mirror of Folly

The perils of active investing have been well chronicled throughout history. In fact, nearly 300 years ago, a Dutch pictorial book titled "Het Groote Tafereel der Dwaasheid," or "The Great Mirror of Folly" painstakingly portrayed the fates that befell investors who heavily speculated as the world's first major stock market crash unfolded.

In the late 1600s, stock exchanges were formed in Amsterdam, Paris and London to bring together buyers and sellers of shares, mostly in companies relating to trade, banking and insurance centered on maritime expansion in the East and West Indies and along the Mississippi River.

The "Tafereel" depicts the promise and ultimate financial devastation experienced by the many investors who became swept up in the allure of amassing quick fortunes in the stock market or "wind trade."

The book includes approximately 79 copper engravings that tell the tales of hope, hype, speculation and devastation. It represents stockbrokers as harlequins or sly foxes and investors as frantic and crazed gamblers. I recently discovered the "Tafereel", and asked Lala Ragimov to recreate a particularly poignant scene titled: "Monument Consecrated to Posterity in Memory of the Unbelievable Folly of the 20th Year of the 18th Century."

Monument Consecrated to Posterity
Monument Consecrated to Posterity (original print)

 

The scene depicts a street in Amsterdam that had erupted into a trading frenzy. At the Quinquenpoix coffee shop, overflow trading became the norm because the exchange had become too crowded with traders manically trading to gain quick wealth. At the scene's center, a cart is being pulled by characterizations of the bubble stocks of the time, including companies like the South Sea Company, the Dutch East Indies Company, and the West Indies Company, a banking company and an insurance company. Driving the cart is Lady Insanity, while the Goddess Fortuna floats above, dropping stock certificates littered with snakes, while the devil blows bubbles in the air. Meanwhile, Lady Fame slowly, but assuredly, leads the cart to one of three destinations: the hospital, the mad house, or the poor house.

I bring this important book and painting to light because they reveal that the same powerful lessons learned in 1720 are still being taught today to investors who speculate in the stock market.

Monument Consecrated to Posterity
Monument Consecrated to Posterity
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