What Flashman teaches us about technology bubbles

Flashman book cover

Flashman is the first in a series of comic historical novels by George MacDonald Fraser based around the exploits of Harry Flashman, the antagonist of Tom Brown’s Schooldays by Thomas Hughes. Picking up after Flashman’s expulsion from Rugby, the book sees him join the British Army and get transferred to India (after a shotgun marriage to an industrialist’s daughter), where he gets mixed up in the First Anglo-Afghan war. Narrowly escaping death on several occasions, he inadvertently becomes a hero when his attempt to surrender during the retreat from Kabul in January 1842 is mistaken for last-ditch resistance.

The key moment

Flashman returns home to the family pile in Leicestershire, flushed with triumph. However, his father Henry reveals that, while his son has been away, he has blown the family fortune and been forced to beg from Flashman’s father-in-law, John Morrison, putting Flashman’s wife Elsepth firmly in control. Although the financial disaster is in part due to Henry’s chronic overspending, “it was the damned railways shares that did the trick… there were fortunes being made out of ‘em… I picked the wrong ones”.

Lessons for investors

Henry Flashman wasn’t the only person to lose his shirt during this period. During the 1830s and 1840s there were in fact two railway bubbles. Between 1845 and 1849, the value of shares in railway companies fell by two-thirds, and in 1837 there was a smaller collapse (which presumably caught Henry out). Notable investors who lost money (at least on paper) included the Brontë sisters and Charles Darwin. But railway shares were no flash in the pan. As late as 1901 they still accounted for half of the value of securities listed in London.

Other financial wisdom

Market research firm Gartner uses the Gartner Hype Cycle to model how investors’ expectations for new technologies evolve. It has five stylised stages. First, a discovery is brought to the attention of the public. It becomes overhyped and overinvested in. The “trough of disillusionment” follows, where impatient investors sell out. A slow process of rediscovery follows, as early investments pay off, before it finally reaches its full potential, becomes mainstream, and the hunt is on for the next big thing.