Saturday, September 18, 2010

Confusion de Confusiones by Joseph de la Vega


A place of paradoxes.
The most fairest & the most deceitful.
The finest & the most vulgar on earth.
Quintessence of academic learning & a paragon of fraudulence
A touchstone for the intelligent & a tombstone for the audacious.
A treasury of usefulness & a source of disaster.

This is how Joseph de la Vega describes the most enigmatic & dynamic business of stocks in his book Confusion de Confusiones.This seventeenth century masterpiece is the oldest book ever written on the stock exchange business. Taking the form of a dialogue between a philosopher, a merchant and a shareholder, it describes the workings, the mechanisms and the participants of the Amsterdam Stock Exchange, the first stock exchange ever created in the world. The book is based on the dealings in a single security, the stock of the Dutch East India Company and its crash of 1688 and the furore created by the false rumors of war and a tax hike to fund an increased defense budget.
The author describes the three classes of people associated with the stock exchange business -
1st Class - The Princes of business, 2nd - Merchants and 3rd - Speculators which translated in today's modern times means - 1st - Investors, 2nd - Short - term traders and 3rd Speculators, the definition of which remains the same be it any century, the people who eat, drink, sleep, breathe shares and are the main contributors to the dynamic nature of stock markets. He has further divided the speculators into two classes who are always colliding with each other - Bulls and Bears. Bulls or liefhebberen (the later meaning "lovers" in Flemish) start their operations by purchases, and Bears or the Contremine ( a name which is explained by the fact that India is considered to be a mine and that this faction strives to exhaust this mine) start their operations by sales. He has mentioned about call and put options, forwards contract and many other things which existed then and are pretty much prevalent today as well. He has mentioned about the three main factors that influenced the rise and fall of prices - the conditions in India, European politics and opinion on the stock exchange itself. Well same applies today as well - global factors, Indian economy and politics and opinion on the stock exchange and you can add up the influence of media, mainly business channels which greatly influence the retail investors i.e., the lay public. It is interesting to note when you read the book that nothing much has changed in terms of the basic nature of the business, nature and type of people associated and the rationale behind their workings over the years but instead has been an improvement and a build up from then to now in terms of technology and a few more things added that makes it more refined and sophisticated based on the foundation laid then.
The Author shares his perceptions based on his experiences and observations, which you can easily term them as his golden principles -
          In his words,
  • The first principle [in speculation] - Never give anyone the advice to buy or sell shares, because, where perspicacity is weakened, the most benevolent piece of advice can turn out badly.
  • The second principle - Take every gain without showing remorse about missed profits, because an eel may escape sooner than you think. It is wise to enjoy that which is possible without hoping for the continuance of a favorable conjuncture and the persistence of good luck.
  • The third principle - Profits on the exchange are the treasures of goblins. At one time they may be carbuncle stones, then coals, then diamonds, then flint-stones, then morning dew, then tears.
  • The fourth principle - Whoever wishes to win in this game must have patience and money, since the values are so little constant and the rumors so little founded on truth. He who knows how to endure blows without being terrified by the misfortune resembles the lion who answers the thunder with a roar, and is unlike the hind who, stunned by the thunder tries to flee. It is certain that he who does not give up hope will win, and will secure money adequate for the operations that he envisaged at the start. Owing to the vicissitudes, many people make themselves ridiculous because some speculators are guided by dreams, others by prophecies, these by illusions, those by moods, and innumerable men by chimeras.  
Era's change, way of dressing and doing things change, there are changes in technology but emotions which govern human behavior and influence their decisions will always remain the same and therefore his advice is still applicable to a T even in today's times. 
A must read for anyone and everyone connected to the stock market business.

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