Investing? Look beyond the S&P 500, says The Library of Mistakes’ founder

[SINGAPORE] In the 1820s, more than 200 people sailed across the Atlantic Ocean from England and Scotland to a supposedly thriving new country – Poyais, near Honduras.

But this was nothing more than an investment scheme hatched by a Scottish soldier named Gregor MacGregor, who had led several military campaigns in the South American region.

He sold worthless Poyaisian currency and bonds – in exchange for sterling – to these people, promising them a vibrant port, fertile land and prosperity. To their dismay, they saw nothing but uncharted wilderness when they arrived. 

“The lesson is – you have to do some research. If it’s a simple story that’s too good to be true, it is too good to be true,” said Russell Napier, the director of Didasko, a UK-based financial education charity.

Such audacious fraud can be perpetuated thanks to the classic failings of human greed and gullibility, he added.

In 2014 in Edinburgh, he founded The Library of Mistakes, a free-to-use library dedicated to the study of financial history. The concept has been replicated in India, Switzerland and – from 2027 – Singapore, too.

Learning from the past

A lawyer by training, Napier has a day job advising global institutional investors on asset allocation. He learnt the basics of finance through formal exams and textbooks, but felt that these avenues were insufficient for explaining how the financial world actually worked.

“The modern pursuit of economics is very mathematically oriented and so are investment and finance, yet what we do every day is only partially about mathematics,” he said. 

“The reason the library was set up was to… push back a little bit and say that in this world, we also need to know sociology, psychology, philosophy, politics and more. You can go and take degrees in all of those, or you can read financial history.” 

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On average, he reads 30 books a year, primarily on financial history because he believes it provides real-world perspectives that standard economic textbooks often lack.

By learning from the mistakes and successes of the past, people can make more informed decisions and avoid pitfalls that have happened before, he added. 

Through a political economy lens

Amid US-China trade tensions and a shifting global order, Napier thinks that identifying and investing in companies affected by these changes could yield better results than just putting money into the S&P 500.

This is especially evident in supply chains: Some companies are adopting the “China Plus One” strategy, where they maintain operations in the Asian nation while also setting up manufacturing elsewhere.

As an example, Napier cited the Danish government’s negative reaction to the discovery that some buses it had bought from China allegedly had security vulnerabilities. When customers turn to alternative sources, companies can find opportunities, he said.

His other investment tip: Use a fund manager, especially during periods of structural change. “The ability of a multi-asset manager to move between different assets, such as equities, bonds, cash and gold, will be crucial.”

Managers focusing on benchmarks will find themselves weighting portfolios to reflect consensus opinions, he added.

“Given the scale of structural change that we (have), investors should seek out a manager with the ability and willingness to deviate from consensus opinion.”

Singapore’s Library of Mistakes is slated to open at the National Library in 2027.

The National Library Board intends to display collections that focus on local and regional financial history, as well as expert-led talks and programmes. Some of the case studies will include the Asian financial crisis of 1997 and the Wirecard fraud case from 2020.

“Financial history doesn’t necessarily have the right answers, but it takes you to the right questions,” said Napier.