The Indicator from Planet Money - Fisher Vs. Keynes: Investing Tragedy And Triumph

Irving Fisher and John Maynard Keynes suffered terrible losses in the Great Wall Street Crash of 1929. But they responded in different ways, leading to tragedy for Fisher and triumph for Keynes.

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in the early 20th century arguably the greatest Economist in the world. One of the most famous people on the planet was Irving Fisher. Most people who know anything about Evan Fisher probably know only one thing this is Economist Tim Harford, which is that a couple of weeks before the Great Wall Street crash of 1929 Irving Fisher said that stalks of reached a new and permanently High Plateau TS lay low by his own incredibly bad investment forecast of the early 20th century who also failed to anticipate the Great Wall Street crash of 1929 John Maynard Keynes both Irving Fisher and John Maynard Keynes lost.

A lot of money in the crash, but they responded to that failure in completely different ways to die 2 millionaire did not diamond in that. He was completely ruined his investment failure. This is the indicator from Planet Money. I'm Cardiff Garcia today in the show. Why was John Maynard Keynes able to recover from the crash of 29? Well Irving Fishers life became this kind of tragic cautionary tale turns out Kings had one ability that Irving Fisher did not have a trait that can make anyone a better economic forecasters and hate who doesn't want to be able to better predict the future. I know I do will tell you what that street is, but you got to wait until after the free.

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Fisher was born in 1867 in the town of Saugerties New York. He got his PhD in economics from Yale in 1891. And for most of his adult life, he enjoyed this almost unparalleled streak of success not just as a great Economist, but also is an entrepreneur and investor Tim Harford is the author of the data detective a new book that includes a chapter about Irvington. He was the basically the inventor of what we now call the Rolodex which is called filing system that made him a multi-millionaire. He was a diet and fitness expert he published a book how to live I which was the Freakonomics if it's day or so 500,000 copies. He set up the life extension Institute. He was a campaigner on probation. He was a vegetarian and astonishing prolific campaigner and finka, how do you make a lot of money in the markets for a while as the stock market?

In the 1920s was going up and Up Fisher was investing more and more money into it. In fact, even though he was already investing a ton of his own money. He was also borrowing even more money to invest in stock so that he could boost his returns Fisher was just supremely confident about his forecast at the market would keep going up confident both in his own intelligence and also in the possibility of using data and statistics to predict the future. So that's where Irving Fisher was right before the crash of 1929 John Maynard Keynes the other great Economist of the era got there a little differently change was definitely already considered one of the great economic minds of the time and just like Irving Fisher canes knew he was the smartest guy in every room he walked into

Say something we all share with James, right? But unlike Irving Fisher John Maynard Keynes had gotten some things wrong by that point. He had been humbled by the market before he had an early investment fund immediately after the first world war that just went went bankrupt and it was fine canes racing more money went back into the markets. We are going to be one cash back if everyone lives happily ever after but he had that experience of going. Yeah. I thought I was smarter than the market. Maybe I'm not smart on the market when the crash of 1929 arrive the stock market collapse more than 20% in two days and within three years, it had fallen more than 89% from where it was before the crash with Irving Fisher and John Maynard Keynes lost a lot of money on their investments in the crash, but there is a huge difference in how they responded. So after the crash Fisher kept doubling down on the same.

She even kept borrowing money to invest in the same losing stocks. For example Fisher own stock in a company called Remington Rand and right before the crash Remington Ranch stock was at $58 a share, but after the crash of the three months, it was $28 a share and fish. It was borrowing money on buying more shares at $28.

4 years into the crash. It was $1 a share that is how to be a millionaire in to lose everything maybe Fisher believe that his precious data just could not be wrong or picked. He could not be wrong or that his self-worth was just tied up in this idea that he was right whatever the case he couldn't change his mind and he lost everything canes was different change treated his failures as a chance to learn a chance to improve his process up to the crash. He had been investing based on his ability to predict the ups and downs of the whole economy. But after the crash he decided that that was just too hard to unknowable. So he changed his strategy to investing in companies that he believed had good management and he thought would go up over time. No matter what the overall economy was doing canes made a fortune for himself. And for the endowment of King's College whose money he was

managing one of the things he said when he was trying to raise money from his own father was win or lose this high-stakes gambling amuses me

that's that's just an amazing thing to say when you're trying to persuade someone to give you money and yet in the end it helps because he just didn't take it so personally for the past few decades has studied the behaviors that lead to better forecasting being very precise in your predictions constantly checking to see if your forecasts are proven true and updating your forecast if they are not true all of these make you a better forecaster but Tim says if he had to summarize all of this research on a bumper sticker when they recognize they might be wrong and the outlaw asking themselves what am I missing what perspective haven't I considered who haven't I talked to that sort of almost paranoid suspicions that you might have messed up and the willingness to change your mind at that leads to much better forecasting

People really struggle to change their mind, especially about their deeply held beliefs that Irving Fisher could not change his mind and John Maynard Keynes could ended up making all the difference in how they live the rest of their lives a few months after the second world war at fisherman canes both died.

Official was alone and Nelly bankrupt hitting bailed out by his millionaire sister-in-law and he's completely lost his reputation as a result of his failed forecast in such a tragic end to a great career canes are the most famous and celebrated Economist on the planet that sometimes gets attributed to Canes that Tim also likes to remember him by he probably never said it but he lifts it which is when the facts change I change my opinion. What are you do?

I wish it had the chance to teach that Lesson 12 and krisha Jim harberts new book where he tells the story of kings and Fisher is called the data to text if there's no possible. In fact check by Sam side indicator is edited by Patty Hearst and it is a production of NPR.

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