What A Midsummer Night’s Dream teaches you about investing

Matthew Partridge teases the lessons for investors out of Shakespeare’s A Midsummer Night’s Dream.

925_MW_P34_Profile_Bottom

1122796a

Shakespeare's A Midsummer Night's Dream, written around 1595-1596, is set on the eve of the wedding between Duke Theseus and Queen Hippolyta. Hermia defies her father's order to marry Demetrius and runs away with Lysander into the nearby forests. Demetrius goes to search for the couple, aided by Helena (who is secretly in love with him). Meanwhile, a group of amateur actors (the "rude mechanicals") are rehearsing a play to be performed at the royal wedding. However, unknown to both groups, Oberon, the king of the fairies, and his estranged queen, Titania, are quarrelling over the guardianship of a changeling child.

The key moment

At the end of the play, when all the other plots have been resolved, we finally get to see the mechanicals perform the play they have been rehearsing. The play, a retelling of Ovid's story of the lovers Pyramus and Thisbe, is comically bad, complete with over-the-top acting and bad special effects. The Duke, while noting that the play was "very notably discharged", politely declines the offer "to see the epilogue" in favour of "a Begomask dance".

Lessons for investors

Just as the performance of the amateur "rude mechanicals" is a little rough, so amateur investors tempted to manage their own portfolio directly to avoid the fees associated with brokerages or online trading platforms can end up reducing their returns through elementary mistakes such as overtrading. Brad Barber and Terrance Odean of the University of California, Davis, have found the average client of a brokerage firm between 1991 and 1997 beat the market by a small amount in gross terms, but their trading costs were so high that they ended up lagging the index by 1.2% a year, with the most frequent traders doing worst.

Because most brokerages charge a minimum fee, the smaller the amount of capital you have, the bigger the impact of trading costs. Those with portfolios of less than £15,000 might be better off with a handful of funds and trusts (either passive "trackers" or actively managed funds). You can think about buying individual shares once you have accumulated more money.

Recommended

I wish I knew what contagion was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what contagion was, but I’m too embarrassed to ask

Most of us probably know what “contagion” is in a biological sense. But it also crops up in financial markets. Here's what it means.
21 Sep 2021
What to invest in to beat soaring energy prices
Investment strategy

What to invest in to beat soaring energy prices

As gas and electricity prices hit the roof, John Stepek explains how to invest to offset higher energy bills.
21 Sep 2021
Are Spacs just for suckers?
Investment strategy

Are Spacs just for suckers?

This year has seen a big boom in activity by special purpose acquisition companies (Spacs) in the US and the Spac craze is spreading to other markets…
21 Sep 2021
The end of the bond bull market, and how to invest for it
Investment strategy

The end of the bond bull market, and how to invest for it

The great bond bull market looks to be over, and you probably don’t want to be holding government bonds, says Merryn Somerset Webb. Here’s what you sh…
21 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021