The History of (Value) Investing w/ Jamie Catherwood, Investor Amnesia (Ep. 56)

Episode Summary

Executive Summary: Jamie Catherwood explains how a lifelong love of history became a financial-history career path, from history studies in London to writing Investor Amnesia and joining OSAM. The conversation centers on why historical investing case studies—especially railroads and dividend policy—still illuminate value investing, investor psychology, and how expectations drive returns.

Main Topics: Jamie Catherwood’s path from history student to financial historian (Priority: 5/5): Catherwood describes a family influence toward history, his history degree at King’s College London, his early finance education through podcasts, and how Twitter and networking led to opportunities at OSAM and in financial-history writing. The power of consistent writing and niche content (Priority: 5/5): He explains how weekly writing, first as articles and later as Financial History Sunday Reads, compounded into a large audience because evergreen historical content keeps attracting new readers long after publication. Value investing’s historical roots (Priority: 5/5): The discussion explores early examples of value-thinking, including a debated Cicero quote about overpriced shares and the broader idea that value investing predates modern finance by centuries. Railroad manias, busts, and value opportunities (Priority: 5/5): A major segment covers 19th-century railroad booms and busts, showing how bankrupt railroads were reorganized, discounted by the market, and later produced outsized returns once operations improved. Expectations, psychology, and market re-rating (Priority: 4/5): The episode emphasizes that investors overextrapolate bad news; when underlying businesses stabilize, valuations can re-rate sharply upward, which is a recurring pattern across eras and industries. How valuation methods differed in the UK and US (Priority: 4/5): Catherwood outlines how British investors relied more on dividends and had weaker disclosure, while US investors increasingly focused on earnings and retained profits, helping shift valuation toward earnings-based metrics. Building Investor Amnesia into a broader educational platform (Priority: 4/5): He discusses the newsletter’s growth, the launch of an online course on bubbles, manias, and fraud, and his ambition to keep expanding the financial-history education ecosystem.

Key Arguments: History degrees teach synthesis, narrative-building, and persuasion—skills directly transferable to investment communication and research. Writing consistently creates compounding benefits; evergreen historical topics continue to generate traffic and connections years later. Value investing is not a modern invention; historical figures and market episodes show investors have long sought mispriced assets. Railroad bankruptcies were often caused by management and financing failures rather than fatal business-model problems, so reorganized railroads could recover dramatically. Investors repeatedly overreact to recent pain, creating opportunities when good businesses are temporarily hated. Different accounting norms shape valuation culture: UK dividend focus versus US earnings focus helped produce different investment frameworks. The growth of Investor Amnesia shows there is sustained demand for historical context in investing, especially during periods of market stress.

Data Points: Financial History Sunday Reads subscribers: about 10,500 - Catherwood says the newsletter grew from a single tweet into a weekly publication with roughly this many subscribers. Pandemics and Markets piece growth: from about 2,500 to 10,500 subscribers - He says the pandemic-era article caused a major jump in newsletter readership. Railway track in England: 98 miles in 1830; 6,000 miles in 1849 - Used to illustrate the speed of the first British railway expansion. US railway expansion after Civil War: 33,000 miles laid in five years - Shows the scale of the postwar American railroad boom. Railroad bond defaults after 1873 crash: nearly a quarter - Cited as evidence of how severe the crisis was for railroad finance. Bank closures / business failures in Panic of 1893: 500 banks and 15,000 businesses wiped out - Shows the breadth of the 1893 economic collapse. Railroads bankrupt by 1894: almost 25% - Indicates how deeply railroad companies were hit after the panic. Atchison three-year annualized net earnings growth post-reorg: 25% - Compared with 7% for solvent railroads that had not gone bankrupt. Baltimore & Ohio three-year annualized net earnings growth post-reorg: 11.5% - Compared with 7.5% for solvent railroads. Northern Pacific three-year annualized net earnings growth post-reorg: 42% - Compared with 11.6% for solvent railroads. Atchison three-year stock return: 810% - Returned after reorganization and sharp operational improvement. Northern Pacific three-year stock return: 688% - Example of outsized gains from bankrupt but restructured railroads. Baltimore & Ohio three-year stock return: 144% - Outperformed many perceived stronger railroad names. Comparable solvent railroad returns: 66% and 42% - The two popular solvent railroads returned much less than the restructured bankrupt names. Atchison operating improvement: $5.5 million increase in traffic receipts; $85,000 lower working expenditure; $1.3 million decline in maintenance costs - Cited to show operational efficiency gains from better loading and longer trains. Atchison surplus available for distribution: -88,000 in 1897; $1.8 million in 1898; $4.2 million in 1899; $9.7 million in 1900 - Shows the rapid turnaround after reorganization. Bubbles, Manias, and Fraud course size: 7 lectures / 7 outside guest teachers - Catherwood’s online course on financial history. Course enrollment: about 280 - Approximate number of students enrolled shortly after launch. First value fund: 1779 - He cites a Dutch broker, Abraham van Ketwich, as launching an early value-oriented fund.

Pivotal Quotes: "History, when you really think about it, is just stories." — Jamie Catherwood: Explaining why he was drawn to history from childhood. "The opportunities in railroad stocks are seldom taken advantage of by the public because of the prejudice and odium inspired by bankruptcy." — Thomas Gibson (quoted by Jamie Catherwood): Used to explain why bankrupt railroads became value opportunities after reorganization. "The upward movement is not at all surprising for the shrinkage in market valuations from which the rally has taken place was in many cases utterly excessive." — Unnamed commentator (quoted by Jamie Catherwood): Illustrates how pessimism created undervaluation and later re-rating in railroad stocks.

Implications: For investors, the episode shows why historical context matters: markets overreact, business quality can survive distress, and valuation frameworks evolve. For content creators, it highlights the compounding value of niche, consistent writing.