Advertisement

What The Taming of The Shrew tells us about the equity risk premium

Matthew Partridge distils the financial wisdom found in Shakespeare's play The Taming of the Shrew.

The Taming of the Shrew is a "problem" play by William Shakespeare. It tells the story of a man, Petruchio, who marries the "shrewish" Katherina Minola and "tames" her. Critics see the play as a straightforward tale of a man being cruel to his wife. Others see it as ironic, or even as a screwball comedy. Whatever the correct interpretation, it remains popular, and is currently the second-most performed of Shakespeare's plays. It also spawned a sequel, The Tamer Tamed, written by sometime Shakespeare collaborator John Fletcher in 1611.

The key moment

At the end of the play, Petruchio makes a bet with Hortensio and Lucentio on who has the most obedient wife. To the surprise of the two men, Petruchio not only wins the bet, but Katherina delivers a speech about why wives should submit to their husbands. In it she argues that obedience is "too little reward" for someone who "commits his body/To painful labour both by sea and land/To watch the night in storms, the day in cold/Whilst thou liest warm at home, secure and safe".

The lesson for investors

Katherina's speech is a great metaphor for the equity risk premium. While shareholders aren't involved in the day-to-day running of their firms, they certainly have to take on bigger financial risks than bondholders, and have been badly mauled by the many bear markets in history. In contrast, holders of US or UK government debt only need worry about inflation. However, like the (perhaps somewhat idealised) stoical husbands in her speech, in the long-run, US shares have worked hard, delivering an average of 6.4% a year after inflation, compared with 2% from bonds (the gap is only slightly smaller in the UK).

Other financial wisdom

At the start of the play, Petruchio makes it clear what he is looking for in a woman when he tells Hortensio that "I come to wive it wealthily in Padua/If wealthily, then happily in Padua". But while mergers are often good for investors in the company being acquired, they are generally bad for shareholders in the acquirer, who have to pay more than a third over the initial share price, according to a 2011 study by JensKengelbach and AlexanderRoos (see page 18).

Advertisement
Advertisement

Recommended

The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”
Investment strategy

The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”

Merryn talks to economist and author Andrew J Scott and discusses how we can profit from the "longevity dividend" as we live longer; why we need to re…
6 Aug 2020
Three mistakes to avoid when investing on Aim
Small cap stocks

Three mistakes to avoid when investing on Aim

Investing in Aim shares can produce spectacular returns. But as Michael Taylor of Shifting Shares explains, you have to have your wits about you.
5 Aug 2020
Too embarrassed to ask: what is “real return”?
Too embarrassed to ask

Too embarrassed to ask: what is “real return”?

MoneyWeek's latest "too embarrassed to ask” video explains what a real return is and why it's so important for investors.
5 Aug 2020
How safe are your dividends?
Income investing

How safe are your dividends?

Dividend investing can be a great strategy. But how can you avoid the stocks that are liable to cut your income? Phil Oakley explains.
4 Aug 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”
Investment strategy

The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”

Merryn talks to economist and author Andrew J Scott and discusses how we can profit from the "longevity dividend" as we live longer; why we need to re…
6 Aug 2020