The Importance of History in Investing

In my previous post, I discussed the importance of social sciences in stock investing. This time, I want to talk about why history is just as crucial.

First, why does history matter in the context of the stock market? (In fact, history is essential not just for investing, but for life itself.) I believe the answer can be found in E.H. Carr’s What is History?. Based on his insights, I’d like to highlight two main reasons why history is vital for investors.

1. History Repeats Itself

E.H. Carr argued that while the past doesn’t repeat itself "exactly," there are common laws and patterns shared between historical events. Because of these patterns, history tends to rhyme. If we understand this, we can predict the future to a certain extent by looking at what has already happened.

2. Breaking the Cycle of Mistakes

Time flows forward and new events emerge every day, so why does history keep repeating? This is where I’ve added my own perspective: History repeats itself because most people don’t study it.

Most people are swept away by the common laws and patterns of events, falling into the same cause-and-effect traps and making the same mistakes over and over. However, a small minority of people study history, learn from the past, and avoid those pitfalls. By doing so, they don't get swept away by existing cause-and-effect patterns—they proactively create their own path and stay ahead of the curve.

Specific Application to Stock Investing

When we try to predict the future, we tend to focus only on the "future" itself. Take the AI revolution, for example. When people discuss where AI is headed, they focus solely on AI technology.

However, I believe the answer to how the AI revolution will unfold lies in the past—specifically, the Industrial Revolution. If history follows certain patterns, we can find the roadmap for the AI era by studying how previous industrial shifts transformed the world.

(In my next post, I’ll dive deeper into how I approached the AI revolution through the lens of the Industrial Revolution, and why that allowed me to buy NVIDIA earlier than most.)

Conclusion

History is inherently important, but it is especially critical in stock investing. Analyzing a specific stock or guessing the future is not enough. To see the future, we must look at the past and interpret the present through that historical lens. The answer to what lies ahead may already be written in the pages of history. Never forget that looking back is often the best way to move forward.

Comments

Post a Comment

Popular posts from this blog

[Investment Philosophy #1] Never Miss the Chance to Buy Great Stocks at a Discount

The core of my first investment principle is simple:  When a fundamentally strong company experiences a sharp decline due to external factors, buy aggressively.  In other words, no matter how excellent a company is, never pay an excessive premium. Many investors emphasize the importance of holding high-quality stocks for the long term. I agree. However, the more critical question is  when  to buy those stocks. While great companies tend to rise over time, simply buying at any price rarely leads to significant outperformance. More importantly, buying at a peak forces you to endure unnecessary losses and wait a long time just to break even. This is why it is crucial to act when good stocks experience a major correction. But why do most people hesitate to buy during such downturns? I believe there are two primary reasons. 1. Lack of Conviction  The fear that a stock will continue to fall indefinitely often stems from a lack of confidence in one’s own research. If y...
Read more

The Importance of Social Science in Investing

Many people study investing by reading books on trading techniques, financial statements, or macroeconomics. Some dive deeper into specialized fields like semiconductors. But does mastering these subjects alone lead to investment success? My answer is a firm "No." While I don't discount the importance of technical and financial knowledge, I believe there is another essential pillar that is often overlooked: the social sciences, philosophy, history, and literature. To be clear, it's not that financial books are unnecessary; rather, I believe that studying the humanities is a prerequisite for any serious investor. The Root of Every Stock is Society In this post, I want to discuss the importance of social science in investing. Why is it so critical? The answer lies in the term itself. Social science teaches us about society, and nothing in this world exists in isolation from it. This applies directly to the stock market. At the root of every stock is a company, and ever...
Read more