What Richard III teaches you about liquidity

published 27 July 2018

906-Rich-634 — Ian Mckellen as Richard III

Richard III is a tragedy written by Shakespeare covering the rise and fall of Richard, Duke of Gloucester (Richard III). Richard manipulates his way to the crown, systematically eliminating his rivals and arranging for the murder of his young nephews, the rightful heirs to the throne.

However, he is defeated by Richmond (Henry VII) at the Battle of Bosworth. Henry then marries Richard's niece Elizabeth, thus ending the Wars of the Roses. The play has been adapted for the screen several times; Laurence Olivier and Ian McKellen (pictured) are among those who have played Richard.

The key moment

At the end of the play the tide has turned against Richard and his forces, and he is reduced to staggering around the battlefield looking for a way to get back into the action. Spurning the advice to retreat, Richard utters what are perhaps the most memorable lines of the play: "A horse, a horse! My kingdom for a horse!" Shortly afterwards, he dies in battle at the hands of the Earl of Richmond, who becomes Henry VII.

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Lesson for investors

Richard's offer to trade his kingdom for a horse illustrates how his power and titles were useless if he couldn't deal with his immediate problem of finding a horse. This highlights the problem of liquidity. Investors sometimes find themselves caught in a market panic and unable to get out, so they will give almost anything to escape. They often have to accept a price far below the intrinsic value of an asset.

A big fortune and plenty of experience are no good if your money is locked away and dwindling because it is trapped in an illiquid market. Beware of tiny, volatile markets, diversify your investments and keep some cash in your portfolio so you're not too exposed to the sharp up- and downswings of one investment.

Other financial wisdom

During the battle Richard exhibits classic signs of overconfidence, dismissing Richmond as "a milk-sop, one that never in his life/Felt so much cold as over shoes in snow?" Similarly, instead of accepting defeat, and a comfortable life in exile, he doubles down and plunges into the fray for one last attempt to kill his nemesis. Overconfident investors underestimate danger and keep dabbling in risky assets instead of cutting their losses if things go wrong.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri