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

Why bonds may not be the safe haven they once were
Investment strategy

Why bonds may not be the safe haven they once were

“De-risking” by shifting your portfolio into bonds used to make sense. But not so much any more, says Merryn Somerset Webb. So what should you do inst…
21 Jan 2021
The world’s fund managers are getting very bullish – be careful out there
Stockmarkets

The world’s fund managers are getting very bullish – be careful out there

The latest survey of fund managers shows them to be extremely bullish on all the same things. And that, says John Stepek, means the market is in dange…
21 Jan 2021
Christopher Columbus Wilson: the spiv who cashed in on new-fangled radios
Investment strategy

Christopher Columbus Wilson: the spiv who cashed in on new-fangled radios

Christopher Columbus Wilson gave radios away to drum up business in his United Wireless Telegraph Company. The company went bankrupt and Wilson was co…
21 Jan 2021
Gold has had a tough start to 2021, but we’ve been here before
Gold

Gold has had a tough start to 2021, but we’ve been here before

Gold has had a disappointing start to the year – in an increasingly digital world, it’s the ultimate analogue asset. Nevertheless, says Dominic Frisby…
20 Jan 2021

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Prepare for the end of the epic bubble in US stocks
US stockmarkets

Prepare for the end of the epic bubble in US stocks

US stocks are as expensive as they’ve ever been. How can you prepare your portfolio for a bubble bursting?
18 Jan 2021
The best investment trusts to buy for 2021
Investment trusts

The best investment trusts to buy for 2021

Sectors ranging from emerging markets to student accommodation look poised to do well this year, says David Stevenson, as he picks the best investment…
19 Jan 2021