Financial diversification before modern portfolio theory: UK financial advice documents in the late nineteenth and the beginning of the twentieth century

The paper offers textual evidence from a series of financial advice documents in the late nineteenth century and the early twentieth century of how UK investors perceived of and managed risk. In the world’s largest financial centre of the time, UK investors were familiar with the concept of correlation and financial advisers’ suggestions were consistent with the recommendations of modern portfolio theory in relation to portfolio selection strategies. From the 1870s, there was an increased awareness of the benefits of financial diversification - primarily putting equal amounts into a number of different securities - with much of the emphasis being on geographical rather than sectoral diversification and some discussion of avoiding highly correlated investments. Investors in the past were not so naïve as mainstream financial discussions suggest today

Stock market investors' use of stop losses and the disposition effect

The disposition effect is an investment bias where investors hold stocks at a loss longer than stocks at a gain. This bias is associated with poorer investment performance and exhibited to a greater extent by investors with less experience and less sophistication. A method of managing susceptibility to the bias is through use of stop losses. Using the trading records of UK stock market individual investors from 2006 to 2009, this paper shows that stop losses used as part of investment decisions are an effective tool for inoculating against the disposition effect. We also show that investors who use stop losses have less experience and that, when not using stop losses, these investors are more reluctant to realise losses than other investors

Investing in charities in the nineteenth century: The financialization of philanthropy

This study deals with the impact of financialization on the development of charity during the nineteenth century. We argue that this has two key aspects: firstly, the growth of charitable provision via limited companies; and secondly, the financial audit by charities of the claimants who approached them. Limited companies operated mainly in the field of subsidized housing. These offered investors a satisfactory return, but at the cost of requirements regarding the level of rent and the behaviour expected from tenants which restricted the number of potential beneficiaries. The evaluation of claimants by charities was pioneered by, but not limited to, the new Charities Organization Society. This constituted a form of audit, with enquiry into claimants’ behaviour, financial status and prospects, and a refusal to support those seen as unreliable or unpredictable. We argue that these developments have significant implications for the social enterprise movement of the twentieth and twenty-first centuries