J.M. KEYNES, THE GREAT INVESTOR… ?

John Maynard Keynes is one of the greatest economists of all times. While he is mostly known for his highly influential economic theories, little is known about his market experience, often understated, but which provides a unique contribution to the future practice of investment management…

>To start with:
  • get an idea of Keynes view on “Mr. Market”: Robert Shiller applying Keynes’s beauty contest metaphor to the 2011 market volatility

“The … best explanation for the market’s back-and-forth swings is that each day we are conducting a Keynesian beauty contest, and reassessing what others think that still others are thinking.” (economistsview.com)

  • His investment style evolved through time… 

“Before the crisis of 1929, Keynes was a speculator, a gambler […] After the crisis, Keynes became a value investor.(skuzet.nl)

“Such great investors as Benjamin Graham, Peter Lynch, John Templeton and Warren Buffett beat the market by an annual average of three to 13 percentage points over their careers. Most of them, however, didn’t have to cope with the Great Depression or World War II.” (wsj.com)

  • Keynes: An Innovator

“Any £100 Keynes invested at the outset would have been worth £1,675 by his death 22 years later… […] The same money invested in an index of UK stocks would have grown £424.” (ft.com) 

“Although his estate was worth at least $22 million (in 2013 dollars) when he died, his contribution to the arts, modern economics and a more stable global economic climate is incalculable.” (res.org.uk)

Nb: this does not include his extensive collection of artwork (encompassing artists such as Matisse, Seurat and Picasso) and rare manuscripts

  • Keynes: A Pioneer

“He learned that this stuff he called ‘animal spirits’ you couldn’t predict” (marketwatch.com)

”Keynes anticipated Eugene Fama, the 2013 Nobel Economics Prize co-winner, in that he clearly did not believe that stock prices must be good indicators of fundamental value” (nytimes.com)

  • Keynes in Today’s environment: “Would Keynes Have Been Fired as a Money Manager today?”  

“ Short-termism and status quo are so widely practiced in the institutionalized world of investing that it’s highly unlikely that investors would have the requisite patience to stick with someone like Keynes today” (awealthofcommonsense.com)

to Sum up:
  • 12 quotes from Keynes summing up his investment philosophy

[#11: “When the facts change, I change my mind. What do you do sir?”] (25iq.com)

  • Lessons to be learned from Keynes as Investor

“He did not believe that markets were efficient” (cfainstitute.org)

=> for more detailed & comprehensive material:

• Book – Keynes’s Way to Wealth: Timeless Investment Lessons from The Great Economist

“Intelligent investing ultimately depends on having an intelligent theory of the economy. This story of Keynes’s life as an investor illustrates this beautifully.” – Robert Shiller

• Academic Paper – Keynes the Stock Market Investor: A Quantitative Analysis 

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2 comments

  1. I am not so sure Keynes principles apply to modern day investor. The stock market has been turned into a gambling institution where the big players have and see all the cards on the table leaving the average investor to guess. Lucky is the guy who’s got a sixth sense and can outguess the big players. To prove my point is the fact that every phenomenon undergoes some initial inertia in changing (it takes time for something to occur) . Experience shows that big players announce crisis on the dot (like financial crisis in Asia or excessive Crude production). Again Gambling is the game , maybe Theory of Games should be considered!

    Liked by 1 person

    • @L. Dominijanni: Very interesting point of view!
      The truth is that stock markets have always been comparable to a gambling institution… In fact, as Joseph de la Vega reminds us, all its modern features such as bulls, bears, panics and bubbles also characterised the first 17th century Amsterdam stock market (despite only two stock being traded: the Dutch East India Company and the Dutch West India Company!)
      That being said, we do still think that Keynes principles could apply today for a private investor (concentrated active value strategies), given the outperformance of those who later thoroughly implemented value investing such as Warren Buffett or Seth Klarman, to name a few. It’s true however, that this strategy is not for the faint-hearted, in fact before prices reach their theoretical intrinsic values, you could face periods of volatility and underperformance, just as Keynes did… in fact he warns: “markets can remain irrational far longer than you or I can remain solvent”.
      Theory of Games is indeed an option, also given that investing sums up to be a Zero-Sum game (after all only one between a buyer and a seller can be right). However, considering that alpha generated has been decreasing throughout the industry for many years, with a large majority of players under-performing benchmarks (this includes some of the big players as well) perhaps a simpler alternative would be a disciplined passive strategy with a great focus on rebalancing, fees and taxes.

      Like

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