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Thales of Miletus: A Hero for the Modern Investor

Delwin Graham - Oct 06, 2021
Sometimes ancient history has lessons for modern investors. Thales of Miletus (c. 620 BC – 545 BC) was an early philosopher, mathematician, and astronomer from the Greek city of Miletus in Ionia (modern-day Turkey).

Sometimes ancient history has lessons for modern investors. Thales of Miletus (c. 620 BC – 545 BC) was an early philosopher, mathematician, and astronomer from the Greek city of Miletus in Ionia (modern-day Turkey). Thales is often referred to as the Father of Science. He is recognized for breaking from the use of mythology to explain the world and the universe and instead explaining natural objects and phenomena by naturalistic terms and hypotheses, in a precursor to modern science.

Thales was among the first thinkers to make hypotheses that were testable and falsifiable, which are bedrock principles of scientific inquiry today. But he is just as renowned for proving that philosophers could be rich, if they just wanted to be.

Aristotle explains: “Thales, so the story goes, because of his poverty was taunted with the uselessness of philosophy; but from his knowledge of astronomy he had observed while it was still winter that there was going to be a large crop of olives, so he raised a small sum of money and paid round deposits for the whole of the olive presses in Miletus and Chios, which he hired at a low rent as nobody was running him up; and when the season arrived, there was sudden demand for a number of presses at the same time, and by letting them out on what terms he liked he realized a large sum of money, so proving that it is easy for philosophers to be rich if they choose, but that is not what they care about.” (Aristotle, Politics, 1259a)

And so, Thales demonstrated the power of reason and natural philosophy. Because of his study and subsequent knowledge of weather patterns, he reasoned that the next season’s olive harvest would prove to be better than expected. But rather than sitting on this information, Thales took the next step and placed deposits on olive presses in Miletus during the preceding winter. In this way, Thales was able to corner the market of olive presses for a small investment. When his prediction of a bountiful olive crop came true, this bet paid off handsomely. The boom harvest created heavy demand for the olive presses, and because Thales had a virtual monopoly on the olive presses, he was able to rent them out for a huge profit. (Cf., robswc, “The First ‘YOLO’ Trade in History,” www.medium.com, November 17, 2019)

Thales is also an important figure for options/futures traders; his play on olive presses is said to be the first use of financial derivatives in recorded history. In effect, Thales had exercised the first known options contract, more than 2,500 years ago. Stated in modern trading terms, Thales had bought ‘call options’ on olive presses – that is, he paid a fixed fee (a ‘premium’) for the option to buy something at some designated price at some future date. An option confers the right (but not the obligation) to buy a commodity, stock, bond, or other instrument at a specified price (the ‘strike price’) at the end of or within a specified time period. When the price exceeds the strike price, the option is ‘in the money’. The fee that Thales had paid to rent the olive presses was ‘in the money’ when the heavy demand created by the bumper crop allowed him to rent them out for a huge profit. (Cf., Leighton Vaughan Williams, “How an Ancient Greek Philosopher Bet on the Future – and Won,” www.leightonvw.com, April 1, 2013)

But Thales has a lesson for all investors. Rather than depending on the mystics of fate (e.g., ‘investing’ in a lottery ticket) or the dictates of the past (e.g., “I’ve always made money with the banks.”), the rational investor will look for current opportunities to profit by considering patterns (i.e., ‘trends’) in the past. Of course, there is always risk because you are investing in the present to get paid in the future; even a dividend or interest payment is paid in the future. There is always a time lag in which things can go wrong. But that risk is the price of opportunity. Please contact me at dgraham@cgf.com or 780-408-1518 to discuss a few more modern opportunities.