Using the past as a guide to the future: What can Herbert Butterfield teach us about investing?

With his historian hat on, Ed Hezlet considers what investors might learn from the British academic historian, Herbert Butterfield.

Go to the profile of Ed Hezlet
Aug 08, 2018

Borrowing ideas from different subjects can help bring about breakthroughs– for example, mixing ideas from psychology and economics helped form the field of behavioural economics and resulted in a Nobel Memorial Prize for Daniel Kahneman. As a member of the Behavioural Finance team at J.P. Morgan Asset Management and a former history student, I thought it pertinent to consider what we, as investors, might learn from the British academic historian, Herbert Butterfield.

Escape the overconfidence trap

Accurately forecasting the future state of complex systems, such as politics, technology and the economy, is a formidable challenge for an investor and is particularly relevant at the current time given the backdrop of Brexit, potential trade wars and the growth of the online consumer. So how can Herbert Butterfield help an analyst escape the fiendish trap of overconfidence in their forecasts of the future?

In his 1931 seminal work, “The Whig Interpretation of History” Butterfield criticised the tendency of historians to “produce a scheme of general history which is bound to converge beautifully upon the present”.

Humans like narratives – it is how we make sense of a complex, often illogical and uncertain world. People don’t tend to consider the alternatives to the present state. Some might claim it was “inevitable” that England didn’t win the World Cup – but for a 109th minute Croatian goal in the semi-finals, it all might have turned out very differently. We don’t tend to give credence to the idea that the present state is just one branch on an infinitely voluminous probability tree – why would we? It isn’t good for our sanity and it’s all just a bit too much to process.

Make the past your present

If human beings don’t tend to think of their present as one iteration of an infinite number of outcomes, why on earth would we change our systems of thinking when considering the future? I believe this is a fundamental reason explaining why we tend to overestimate our powers of foresight. I like to think that Butterfield would agree with my theory that humans tend to ignore the randomness of past events and the infinite complexity leading to our present state.

“In reality the process of mutation which produced the present is as long and complicated as all the most lengthy and complicated works of historical research placed end to end, and knit together and regarded as one whole”

Butterfield’s proposed remedy for the historian is “making the past our present and attempting to see life with the eyes of another century than our own”. Following his advice, I shall turn to an article featured in the Spectator on 4 September 1897 discussing the future of water power. 1The writer postulates that “striking developments of water-power for industrial purposes” may undermine the manufacturing advantages enjoyed by those nations rich in coal, namely England, Germany and Belgium.

The author makes a wonderful series of logical observations, including that previous industrial use of water mills typically required the machinery in the mill to be “coupled directly to the water wheel by shafting and gearing” whereas a turbine that could convert river power to electricity meant that a water powered factory no longer had to reside along the banks of a river. However, 120 years after the author’s article, Germany remains a world leader in manufacturing whilst generating 39.1% of its electricity from coal and only 3.8% from Hydro.3 

Focus on analysts’ earnings revisions

The key takeaway is that our tendency to focus on post-hoc narratives that describe our path to the present leads us to ignore the paths of history that were never trodden. When it comes to making a forecast of the future, this may pre-dispose us into ignoring a large proportion of the multitude of potential future outcomes - which may in turn explain our tendency to have overconfidence in our predictions of what lies ahead.

The J.P. Morgan Asset Management Behavioural Finance team takes a different approach – rather than relying on forecasts themselves, we are particularly interested when analysts have to make positive or negative revisions to their forecasts. It’s these changes in analyst forecasts that can be a reliable guide to share price performance. In the case of the Spectator journalist writing in 1897, we suspect that their lofty predictions for the importance of water power may have needed a few downgrades as the envisaged transformation failed to materialise.

Ed Hezlet is an assistant portfolio manager in the J.P. Morgan Asset Management International Equity Group – Behavioural Finance Team. Read more about our UK capabilities >


Find out more about our UK capabilities

1 Source:

2 Source: BUTTERFIELD, Herbert. The Whig Interpretation of History


For Professional Clients/ Qualified Investors only – not for Retail use or distribution.

This is a marketing communication and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. 0903c02a822f8128


Go to the profile of Ed Hezlet

Ed Hezlet

Investment Assistant, UK Equity Group, J.P. Morgan Asset Management


Go to the profile of John
John 6 months ago

Go to the profile of John
John 6 months ago