Researchers led by financial historian Larry Neal of the University of Illinois have replicated all the holdings and trades in the Bank of England, the East India Co. and the United East India Co., the Royal African Co., the Hudson’s Bay Co., the Million Bank and the South Sea Co. –the dominant companies at the birth of British capital markets three centuries ago.

The share registries survive, so the scholars were able to match virtually every investment with the person who held it – encompassing 5,813 investors during the 1690s and 23,723 by the end of the period.

These people included everyone from dukes and other aristocrats to “stockjobbers,” or brokers, along with merchants, apothecaries, glassmakers, drapers and goldsmiths – and up to 27% of them were women.

The researches concluded that investors were:

• underdiversified, with 86% of them owning shares in only a single stock;
• chased performance, with rising prices leading to higher trading volume;
• underperformed the market as a whole, earning lower returns and incurring higher risk.

Women appeared to be more conservative than men.

The WSJ article then goes on to compare those investors with investors today suggesting there is very little difference as investors today:

• underdiversify, holding an average of only three stocks;
• chase performance, with rising prices leading to higher trading volume;
• underperform the market as a whole, earning lower returns and incurring higher risk.

A lot has changed in the world over 300 years but human nature has not.  Smart investors can learn from the errors of history to better structure investment portfolios today:

• be well diversified;
• don’t chase performance rather invest in asset classes that haven’t been doing so well lately;
• avoid an active management approach to investing.