The lessons of history – How close were the ancient Chinese to inventing value investing?


Simon Adler

Simon Adler

Fund Manager, Equity Value

From gunpowder, fireworks and alcohol to paper, playing cards and even money, the Chinese are credited with inventing so many things but surely they never had a hand in the creation of value investing? Well, no, they did not but, as we recently learned at a talk on the history of the ancient world, they were well on the way to getting there almost 1,000 years ago.

The talk introduced us to a book of which we had previously been unaware – an 11th Century tome called ‘Zizhi tongjian’ (literally ‘The comprehensive mirror to aid in government’). Taking almost 20 years to put together, it was at the time the longest history of China ever written. In keeping with China’s reputation for inventiveness, it was also the country’s first ever chronological history.

In 1065 AD, Emperor Yingzong of Song commissioned – OK, he probably ordered – the great historian Sima Guang, supported by a number of other scholars, to write the book as a means of helping him to be a good ruler. The emperor’s thinking – which would have set him well on the way to being a fine value investor – is that history can be used to guide decision-making in the future.

This is not to suggest past performance, whether it be good or bad, is necessarily a guide to the future – only to point out that value investing has displayed a consistent pattern of mean reversion over more than 100 years of history and, as such, can help to strengthen resolve at times when, for example, the rest of the market is growing excessively greedy or fearful.

Here on The Value Perspective, as we have repeatedly made clear in articles such as Poll position and Rain or shine, we do not believe there is any point trying to forecast the future – mainly because it is just not possible. Far better, we would argue, to concentrate on a business’s own long-term history – that is, at least 10 years– to help identify past peaks and troughs and thus its relative valuation ranges.

For the record, the first beneficiary of The comprehensive mirror to aid in government was Emperor Shenzong of Song – his predecessor having died before the book was completed. Not that Yingzong would have necessarily needed a history book to tell him that was a possibility after commissioning something that ended up containing 294 volumes and some three million Chinese characters.


Simon Adler

Simon Adler

Fund Manager, Equity Value

I joined Schroders in 2008 as an analyst in the UK equity team, ultimately analysing the Media, Transport, Leisure, Chemicals and Utility sectors. In 2014 I moved into a fund management role and have had experience managing Global ESG and Pan-European funds.  I joined the Value investment team in July 2016 to focus on UK institutional and ethical-value portfolios.

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