Thursday, February 12, 2009 2 comments ++[ CLICK TO COMMENT ]++

Who knew? Charles Darwin was a decent investor

Today is the 200th anniversary of Charles Darwin's birth. He was a very important person, not just for developing the theory of evolution, but also for providing a tool to take on the super-powerful Christian establishment. My impression is that, until Darwin, it was difficult to challenge key elements related to the belief of God, except in a narrow philosophical manner. On the Origin of Species by Means of Natural Selection might actually be the most important scientific work ever published in modern history.

Anyway, The Globe & Mail has an article on Darwin--a very poor article trying to extrapolate Darwin to the present stock market--that mentions how Darwin was a decent investor:

Unlike many devoted men of science, Darwin was also an accomplished man of business, who parlayed his inherited capital into an extremely profitable portfolio of bonds, stocks and property.

These included investments in farm land, mortgages and docks.

As well, he invested in debentures and preferred shares in a slew of railways at the height of England's rail boom in the 1840s.

These were the Internet stocks of the era, attracting flocks of novice investors to companies with more promise than revenue.

By 1845, the bubble had burst, wiping out most of the untutored.

But Darwin nimbly evaded the disaster, benefiting from takeovers and selling most of his transportation holdings before they headed over the cliff. He rarely sat on cash for long (partly because the financial system of the day was not considered safe), and in this case moved quickly into government bonds.

By the late 1850s, he had jumped back into rail, buying preferred stock and bonds issued by several of the survivors.

Once, in reply to a questionnaire, the renowned naturalist said he had no special talents other than "for business, as evinced by keeping accounts, replies to correspondence, and investing money very well."

His acumen was largely inherited. His paternal grandfather was an early investor in Britain's canal-building boom and his physician father expanded the family fortune as a successful mortgage lender. His mother was a member of the wealthy Wedgwood clan of pottery fame.

Charles Darwin also married a Wedgwood, Emma, a first cousin. Each received £10,000 as a wedding gift. Through inheritances, Darwin likely added about another £45,000, which made him wealthy by the standards of the mid-1800s.

By 1881, without ever having held a paying job, his fortune had grown to about £282,000 (many millions by today's standards). His earnings from his published work totalled only about £70,000; the rest came from investment income.

He was a frugal man with "a balance sheet mentality," says Janet Browne, a Harvard professor whose biographical work on Darwin opens a rare window on the finances of a middle-class Victorian family.

Darwin began keeping detailed accounts just 10 days after his marriage in 1839 and updated them daily until the day before his death in 1882.

So how might he have handled today's financial crisis?

For one thing, he would have had no debt. Like Warren Buffett, Darwin would never have borrowed to buy stock, and always sought to reduce risk.

But his attraction to rail shows that he embraced technological change and understood the economic implications. This would certainly have led him, however cautiously, to companies on the cutting edge today.

Seeking investment advice from Darwin during a stock market crash seems questionable but, nevertheless, his history is kind of interesting. It's not clear to me how good these returns were or who was managing his portfolio. All we can say is that it seems, from the limited information in the article, that he was a growth investor with a contrarian streak of some sort :) I say contrarian because he somehow managed to ride the railroad boom and get out before it burst, and then bought it later after the bust. Now, only if I can somehow manage to do that... :)


2 Response to Who knew? Charles Darwin was a decent investor

February 13, 2009 at 9:14 AM

Well, just going by these numbers, and not accounting for taxes or cost of living expenses.

It looks like total income was 125,000. His estate grew to 282,000, so that is greater than a double. If you account for living expenses, his investments probably twice doubled in his career. 200% would seem decent, though I expect that the risk of total loss was greater back then. More fraud, etc.

February 13, 2009 at 11:32 PM

Charles Darwin also re-canted much of his theories on the death bed as he prepared to meet his meker!!!

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