"“History never repeats itself. Man always does.”"

-Voltaire

Lesson #1: People suffering from sudden, unexpected hardship are likely to adopt views they previously thought unthinkable.

Why five lessons?

Every now and then a reader drops me a note, encouraging me to read this or that. Most of the time I follow the advice, as I don’t think you can ever learn enough. When Noel (a long-standing reader of the Absolute Return Letter) dropped me a line in early December and suggested I read “Five Lessons from History” by Morgan Housel of the Collaborative Fund, at first, I just added it to my (already very long) list of Christmas readings and didn’t think more about it. December is not exactly the month of the year with the most spare time!

Now, fast forward to my Christmas break. One bleak morning between Christmas and New Year, lying on the couch in my house in Denmark, I finally managed to read what had been so highly recommended to me, and it was indeed a treat. I actually enjoyed it so much that I, on the spot, decided that Noel had just given me no less than five Absolute Return Letters for 2020. Thank you, Noel.

In the paper, Morgan Housel picks up on five behavioural patterns that all have a significant impact on financial markets every day of the year. This month, I will deal with the first of Morgan’s five lessons:

People suffering from sudden, unexpected hardship are likely to adopt views they previously thought unthinkable.

It is a very powerful behavioural pattern that, over the years, have had, and will continue to have, enormous impact on everything. Let me explain.

The meaning of hardship

Although one may suffer from hardship in more ways than one, e.g. through serious illness, let’s remind ourselves that this is indeed a financial newsletter, so let’s assume that we are dealing with financial hardship here.