The "Confusion:" Relevant ETF Advice From 1688

When my editor asked if I could turn the story of Joseph Penso de la Vega’s 1688 book on the stock market, the earliest one known, into an ETF-themed article, I was ready to immerse myself in confusion. 

Because that’s the name of the book.  

Confusion de Confusiones (Confusion of Confusions), written in Spanish and printed in Antwerp, Belgium, was the author’s observations about the history of investment speculation, including from his own experience as an active participant at the Amsterdam stock exchange. He wrote about contemporary market elements such as overconfidence and herd behavior, which really have not changed. Investors are as overconfident as I have seen in 38 years on Wall Street. We see it in the stock market, crypto and even bonds, and it is all captured through flow into ETFs.  

Speculation in Today’s ETF Market

The Invesco QQQ Trust ETF (QQQ) has, in the minds of many young investors, become “the market,” despite having reached the point where it's driven by a small number of companies that are dynamic, but could untimely be seen as wildly overpriced. And nothing says “herd behavior and overconfidence” like the massive flows into ETFs like the iShares Bitcoin Trust (IBIT), among more than 10 other peer ETFs that launched earlier this year.

And the surge of interest in the iShares 20+ Year Treasury Bond ETF (TLT) last year, as if it was some type of broad bond market proxy (it is way more volatile than most parts of the bond market), is further evidence that what passes for investment activity is really speculating about what people hope will happen. And the more people that do it, the more attractive it looks to the herd. 

Safety in numbers is at odds with the Benjamin Graham/Warren Buffet approach to investing. But that’s what makes it a market. If everyone thought the same way all the time, it would be hard to have buyers to match sellers.

The author of that first book on investor behavior even wrote about options and futures. Those have been at the core of the growth plan for several savvy ETF issuers have seized on in recent years, to offer a much wider “tent” for investors to place their assets. That feeds into the speculation aspect of what de la Vega cited more than 300 years ago, more than 100 years before the New York Stock Exchange opened.

Investing Principles Endure

Among De la Vega conclusions about speculation which are relevant to today’s ETF investor, given how markets have developed over the decades. They include:

• Never advise anyone to buy or sell shares.

De la Vega would not have been popular at 21st century ETF conferences, which bring together product producers and investment advisors who buy them…on behalf of clients! Still, the revolution in self-directed investing makes me wonder if the pendulum will swing further toward the “do it yourself” version of using ETFs.  

• Accept both your profits and regrets, but don’t expect favorable circumstances will last.  

To me, this is the most significant statement about modern markets one could make. Apart from a couple dozen stocks, what is more common today are sharp but unsustained price gains. The average stock has been volatile but unprofitable in recent years. I think this is a more a characteristic of modern markets than a passing phase. And now that I’ve written this, hopefully in the year 2360, 336 years from now, someone will refer back to it.

• Money and patience are required to become rich from “this game.”  

That sounds like a bit of a catch-22, if the patience part can only follow having the money to start with. However, this is perhaps the most relevant of de la Vega’s observations to the ETF industry. No longer are huge sums of money needed to invest in indexes that in turn, access a seemingly unending range of markets.

An ETF Investor’s 336-Year old Playbook

A book on investing can be an aid to any investor. I’ve penned a couple myself. But the idea of a book written before the founding of United States and the French Revolution still having this much relevance just goes to show that investing is not some foreign concept.  

It is just one application of our biases, motivations, and personalities, and our greed and fear. Hopefully our audience is a bit less confused about ETFs and investing after this summary of Joseph Penso de la Vega’s “Confusion of Confusions,” a classic that still rings true more than 300 years since it was published. The same basic instincts about investor behavior de la Vega wrote about just four years before his death at age 42, are as contemporary an investment guideline as ever.