William N. Goetzmann is the Edwin J. Beinecke Professor of Finance and Management Studies and Faculty Director of the International Center for Finance at the Yale School of Management. He is an expert on a diverse range of investments. His past work includes studies of stock market predictability, hedge funds and survival biases in performance measurement. His current research focuses on alternative investing, factor investing, behavioral finance and the art market.

Professor Goetzmann has written and co-authored a number of books, including Modern Portfolio Theory and Investment Analysis (Wiley, 2014), The Origins of Value: The Financial Innovations that Created Modern Capital Markets (Oxford, 2005), The Great Mirror of Folly: Finance, Culture and the Crash of 1720 (Yale, 2013) and most recently, Money Changes Everything: How Finance Made Civilization Possible (Princeton, 2016). He teaches portfolio management, alternative investments, real estate and financial history at the Yale School of Management.

https://youtu.be/eY1jV4sE7KE

How the financial system works and how we interact with it has grown in complex ways and is a fascinating but nuanced topic. To guide us through the history of the economy is Professor William Goetzmann, who is an expert in finance, economics and art history, and whose research has been featured in top publications. As a highly respected scholar, he’s authored numerous books on topics such as real estate and behavioural finance. It is fair to say Professor Goetzmann’s work has left a significant impact on both academia and the world. In our conversation, we dive into financial market history and explore more than just broad market returns. We unpack the fascinating phenomenon of economic bubbles and booms, and how they have evolved and shaped the financial system. He also shares crucial insights from the past and advice for investors looking to leverage the market. And to wrap things up, Professor Goetzmann shares his views on money after digging deep into its historical roots. Tune in to unlock the secrets of the past and gain valuable insights for the future as we journey through the fascinating world of economic history. Tune in now!

Key Points From This Episode:

Why is it important to collect and examine long-term historical returns data, and how useful the findings can be for today’s market. (0:03:21)
The furthest back in time that Professor William Goetzmann has looked at equity returns and how much of an issue survivorship bias is in long-term historical data. (0:05:44)
Reasons for the United States market trends concerning equity risk premiums and his approach to forecasting long-term returns of both stocks and bonds. (0:11:02)
Whether current discount rates are better for estimating future returns than long-term historical returns. (0:17:08)
How the markets of today compare to the markets of the 1900s, and whether investor behaviour has changed. (0:18:42)
Learn how global finance changed after the First World War and how likely a global financial meltdown is. (0:23:35)
What to consider when investing internationally and whether Canadian investors should be biased towards their home country. (0:28:23)
Hear Professor Goetzmann’s definition of an asset price bubble and his approach to studying economic bubbles and booms. (0:32:44)
Overview of the economic bubble and boom trends and crucial advice he has for investors regarding a market run-up. (0:36:18)
An explanation for negative bubble behaviour and how well market crashes align with investor expectations. (0:41:46)
The role of media in influencing investor behaviour, and whether long-term investors should ignore news from the financial media. (0:47:35)
What Professor Goetzmann has learned from studying bubble dynamics, and his advice for investing in transformative technologies. (0:52:50)
Professor Goetzmann’s book Money Changes Everything, his definition of money, and if money pre-dates trusted authorities. (0:57:47)
The role of money in finance and a brief outline of how finance played a role in the development of modern civilization. (1:02:13)
Professor Goetzmann’s definition of success. (1:06:08)

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Books From Today’s Episode:

Money Changes Everything: How Finance Made Civilization Possible — https://amzn.to/3KqOYzX

Links From Today’s Episode:

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/

Shop Merch — https://shop.rationalreminder.ca/

Join the Community — https://community.rationalreminder.ca/

Benjamin on Twitter — https://twitter.com/benjaminwfelix

Cameron on Twitter — https://twitter.com/CameronPassmore

Prof. William Goetzmann on Twitter — https://twitter.com/wgoetzmann

Prof. William Goetzmann — https://som.yale.edu/faculty-research/faculty-directory/william-n-goetzmann

‘History and the Equity Risk Premium’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=702341

‘The present value relation over six centuries: The case of the Bazacle company’ — https://www.sciencedirect.com/science/article/abs/pii/S0304405X18302836?via%3Dihub

‘A Century of Global Stock Markets’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=225683

‘Will History Rhyme?’ — https://jpm.pm-research.com/content/30/5/34

‘New evidence on the first financial bubble’ — https://www.sciencedirect.com/science/article/abs/pii/S0304405X12002541

‘Bubble Investing: Learning from History’ — https://www.nber.org/papers/w21693#:~:text=History%20is%20important%20to%20the,sample%20size%20for%20inference%20small.

‘Negative bubbles: What happens after a crash’ — https://onlinelibrary.wiley.com/doi/abs/10.1111/eufm.12164

‘Crash Beliefs From Investor Surveys — https://www.nber.org/papers/w22143

‘Crash Narratives’ — https://www.nber.org/papers/w30195

About The Author

Cameron Passmore

Cameron Passmore has been a leading advocate for evidence-based, systemic investing for over 20 years in the Ottawa area. Today, Cameron and his team serve a broad range of affluent clients across Canada.