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The Rosetta Stone’s clue to cracking the value code

It is always rewarding to find new instances from other walks of life where great minds have used techniques with a parallel in value investing – such as one of the men behind the decoding of the Rosetta Stone

20/01/2021

Andrew Williams

Andrew Williams

Investment Director

When a group of priests issued a decree establishing the divinity of the pharaoh Ptolemy V in 196 BC, they unwittingly created the key to the modern understanding of ancient Egyptian scripts. For the decree was set out in three texts – hieroglyphic and demotic Egyptian as well as ancient Greek – on what has come to be known as the Rosetta Stone, which was finally deciphered in full some 2,000 years after it was first inscribed.

How the code was cracked and by whom has been the subject of numerous books but the most recent contains a line to warm the heart of any committed value investor. As its title suggests, The Riddle of the Rosetta: How an English Polymath and a French Polyglot Discovered the Meaning of Egyptian Hieroglyphs by Jed Z. Buchwald and Diane Greco Josefowicz, tells the story of the two men who did most of the groundwork.

The ‘English polymath’ was Thomas Young, whose efforts – including identifying certain phonetic characters in the hieroglyphic text and noting multiple similarities between the hieroglyphic and demotic texts – paved the way for the final deciphering by the ‘French polyglot’. This was Jean-François Champollion, who went on to construct an alphabet of phonetic hieroglyphic characters and later a hieroglyphic dictionary.

Work in progress

“Interestingly,” note the authors of The Riddle of the Rosetta, “he tended to work only on the recto side of the pages in his dictionaries of roots, leaving the verso blank. This procedure suggests work in progress, as he routinely allowed room on the left-hand pages for expansion of material entered first on the right-hand ones. In other words, he planned to be surprised.”

We too find ourselves interested by this snippet, here on The Value Perspective, as we delight in finding examples from other walks of life where exceptional minds have recognised the benefits of techniques with a parallel in value investing. In Champollion’s case, it is the margin of safety – what no less a figure than Benjamin Graham, the father of value investing, described as “the secret of a sound investment”.

What Graham meant by this observation is that the price you pay for any investment needs to be cheap enough to allow for the possibility of a range of unexpected adverse outcomes. To put it another way, because many things can go wrong at once, it pays to be cautious and thus, as Champollion clearly understood, to plan to be surprised.

Author

Andrew Williams

Andrew Williams

Investment Director

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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