Reamer and Downing, Investment: A History

Investment by Norton Reamer and Jesse Downing (Columbia Business School Publishing, 2016) is a sweeping history, organized both chronologically and thematically. Just to give an idea of the book’s reach, its nine chapters are titled: “A Privilege of the Power Elite,” “The Democratization of Investment,” “Retirement and Its Funding,” “New Clients and New Investments,” “Fraud, Market Manipulation, and Insider Trading,” “Progress in Managing Cyclical Crises,” “The Emergence of Investment Theory,” “More New Investment Forms,” and “Innovation Creates a New Elite.”

The early chapters span centuries and cross continents. We read, among many topics, about Greek real estate loans, usury in Islamic and Asian societies, Italian city-states and their merchant banks, trade in India, and pensions in Rome. As the authors turn to the seventeenth to nineteenth centuries, we learn about the creation of joint-stock companies, the Industrial Revolution, and the advent of public markets.

Despite its broad scope, the book does not move at a dizzying pace. Nor is it objectionably superficial. The product of a seasoned asset manager and a young investment analyst, along with a team of research associates, mostly Harvard economics majors, the book is a well-crafted history designed to highlight a few themes, such as the increasing democratization of investment opportunity and shifting elites.

A few words on this last point. In ancient economies, where agriculture was usually associated with nobility and commerce or trade with low status, land ownership was the preferred way to store and accumulate wealth. It was the privilege of those in high economic, social, and political positions. But these landowners frequently “lacked the knowledge to manage their assets and had to draw upon the talent of others to do so. Therefore, elite landowners often hired lower-status people, including slaves, to manage their estates.” (p. 15)

Fast forward to the late twentieth century when investment management started to become the business of the elite and clients (such as insurance companies and pension plans) often represented a broad swath of the population. That is, lower-status people, through their agents, hired the elite to manage their assets. In 2014, according to Forbes, American billionaires in finance and investment made up 25 percent of all billionaires in the United States. “This is, of course, in an industry that employs far less than 1 percent of the country’s workers.” (p. 303)

This book does not tell the reader how to invest, though it does tout four basic investment principles: real ownership, fundamental value, financial leverage, and resource allocation. Its own value lies in providing a historical context for today’s investment landscape. And it does that in a remarkably interesting way.