People want to believe the present is different than the past. Markets are now computerized, high-frequency and block traders dominate, the individual investor is gone and in his place sit a plethora of huge mutual and hedge funds to which he has given his money. Some people think these masters of money make decisions differently, and believe that looking at how a strategy performed in the 1950s or 1960s offers little insight into how it will perform in the future.
But while we humans passionately believe that our own current circumstances are somehow unique, not much has really changed since the inarguably brilliant Isaac Newton lost a fortune in the South Sea Trading Company bubble of 1720. Newton lamented that he could “calculate the motions of heavenly bodies but not the madness of men.” Herein lays the key to why basing investment decisions on long-term results is vital: the price of a stock is still determined by people.
