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Do snails really have better memories than most investors?

Scientists have successfully managed to delete memories from snails – finally catching up with investment markets, which have been doing something similar with themselves for centuries

14/07/2017

Andrew Williams

Andrew Williams

Investment Specialist, Equity Value

If they have been steadily chomping their way through your flowerbeds over the summer months, you may be disinclined to summon up a great deal of sympathy for snails.

And yet surely you would have to have a heart of stone not too feel a little sorry for the subjects of a recent experiment that has seen scientists successfully manage to delete memories in snails.

No – we have no idea either, here on The Value Perspective, how you would test whether or not you had been successful in this.

Still, according to a recent article in Current Biology, researchers from Columbia University Medical Centre and McGill University in the US found they could erase memories by tinkering with proteins – and thus erasing connections – in the brains of the unfortunate molluscs.

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A practical application for humans

Nor were the scientists doing this just to see if they could.

Their work is seen as the first step to erasing memories in humans, which would have significant implications for the treatment of medical and psychological conditions – for example, post-traumatic stress disorder – especially if it could be achieved while preserving the patient’s normal memory of the past.

That, of course, would be amazing and yet, as we read the article, we could not help thinking this would have absolutely no application to the world of investment – for the simple reason markets tend to forget things very quickly anyway.

From tulips to technology, history is littered with examples of investor euphoria and panic to prove that point but, for the sake of variety, let’s focus on Argentina’s sale last month of a 100-year bond.

A 100-year bond?

Why anyone would ever want to buy a 100-year bond is a question we pondered in Sale of the century, when the Mexican government issued one this time three years ago.

Why anyone would buy a 100-year bond from Argentina – a country that has defaulted on its sovereign debt eight times since it achieved independence in 1816, including what was then the world’s largest-ever default in 2001 – is, frankly, beyond us.

To its credit, the Financial Times made a valiant effort to explain this development – assembling a Q&A that included the telling questions “Why were there buyers?” and “Should we be worried this is a sign of froth?”.

The piece, however, concluded less than reassuringly: “Investors buying a 100-year bond issued by Buenos Aires are making a risky bet that this time things are going to be different.”

Four dangerous words

“This time it’s different” have famously been described as the four most dangerous words in investment but a more pertinent quote here, we believe, is the view of the economist JK Galbraith (Wikipedia) in connection with what he called “the extreme brevity of the financial memory” and its natural consequence that “financial disaster is quickly forgotten”.

“When the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely confident generation as a brilliantly innovative discovery in the financial and larger economic world,” he writes in his 1990 classic A Short History of Financial Euphoria (Amazon).

“There can be few fields of human endeavour in which history counts for so little as in the world of finance.”

One of the great strengths of value investing is it helps keep the memories of its adherents green by virtue of its disciplined focus on buying attractively valued, out-of-favour companies at all stages in the investment cycle.

Here on The Value Perspective we seek to apply this approach consistently as, while we know it will not always be in favour and although past performance is not a guide to future results, we also know, over longer time periods, it has generated exceptional returns.

Author

Andrew Williams

Andrew Williams

Investment Specialist, Equity Value

I joined Schroders in 2010 as part of the Investment Communications team focusing on UK equities. In 2014 I moved across to the Value Investment team. Prior to joining Schroders I was an analyst at an independent capital markets research firm. 

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