Whenever I meet Russell Napier he’s cheerful, which is surprising since he has made a living out of pessimism – or, more exactly, grave doubts about the ability of many of his fellow finance professionals to learn the lessons of the past.
His favourite quotation is from the commentator Jim Grant: “Progress is cumulative in science and engineering, but cyclical in finance.” Researching HUBRIS taught me the truth of the second half of that statement. In almost any aspect of finance, the same mistakes are repeated at least once every generation.
In 2005 Russell published Anatomy of the Bear, a look at the previous four Wall Street crashes. His prediction at the end of that book that we were headed for a fifth crash must have looked unduly gloomy, given that the market was rising at the time and carried on up to a peak in the Autumn of 2007. But his forecast that the Dow Jones Index would fall by 60% and the Bear market bottom would be reached in 2009 proved to be spot on.
Russell was the inspiration behind the Practical History of Financial Markets course, at Heriot Watt University’s Edinburgh
Business School, which in an intense two days aims to give bankers, investment managers and stockbrokers 200-years of practical experience – essentially what we can learn from previous disasters. The course has sold out in every year since its start in 2009, but has still only reached a tiny proportion of those working in finance. It should be compulsory.
Now he has a new venture: A Library of Mistakes.
What he plans is a unique resource for researchers to learn from past errors, incompetence, bad luck, fraud and all the other things which can go wrong. And do, with astonishing regularity. He hopes it will be used by financial practitioners as well as academics. As he says: “Learning from mistakes on the job comes at a very high price for investors. A study of financial mistakes can materially reduce that cost.”
The Library already has premises: in a deal with Scottish Investment Trust it will renovate a mews property behind Albyn Place, Edinburgh, and in return get a seven-year lease. “This will be a very pleasant property when renovated,” says Russell, “and as there are no staff the running costs will be minimal. Anyone wishing to use the library will get a readers card, make an appointment and then be buzzed into the property by video phone link.”
Didasko Education, the charitable company which owns and runs the Practical History of Financial Markets course, has set aside one year’s profits to fund the venture. Any additional funds Russell can raise for the library will go solely for the purchase of materials. Donations can be made via russell@sifeco.org.
I am pleased to say that HUBRIS: How HBOS wrecked the best bank in Britain, will be one of the first books on the library shelves!
