Money lessons from some wise priests: time and patience

08 December 2019 - 06:55I’m not alone in having recently been gripped by the ideas of Yuval Harari . Harari gives a fascinating account of the birth of statistics when the Scottish Widows insurance company was started more than 200 years ago.In 1744, two Presbyterian ministers, Wallace and Webster, wanted to create a solution to safeguard the widows and families of dead clergymen. To do this, they needed to be able to make predictions around such events.

So, of the 930 Scottish Presbyterian clergyman in any year, 27 were expected to die. Of these, 18 would have widows and five would leave an orphaned child. And so the scheme was launched on the back of these odds. Premiums of between £2 and £6 would secure different returns in the event of death. What can we take from this? In this instance, the priests were up against several unknown variables, but they were able to work with precision. In aiming to “control the ‘controllables’,” they systematically — mechanically, even — used evidence, stats and figures to address a financial problem.

Rationally, it doesn’t make sense for this trend to continue forever. Equity markets should outperform safer asset classes over time, because investors are rewarded for taking the risk. In other words, there’s a sensible risk-based explanation.

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