To help you understand Keynes, I suggest readers first read my post four years ago, “John Maynard Keynes, Investment master“
The only academic investment master
The following are some of Keynes’ special achievements in investing:
- Keynes is the “only” famous figure who has the status of a legendary master of both economics and investment. There is a big difference between academia and the actual situation of real society. Usually, the return on investment of so-called academics or finance professors will not be very good.
- He has long been managing the investment portfolio of King’s College Cambridge Community Chest Fund, and achieved the extraordinary achievement of achieving an annual investment return of 12.4% during a 21-year period. During the same period, the overall stock market fell 15%, which is an impressive performance.
- The active components of his portfolio outperformed the UK stock index by an average of 6% to 8% per year over 25 years, earning him high praise from recognized stock investing gurus such as future generations Buffett and George Soros.
Related Works by Keynes
There are some books related to Keynes’ investment in the market, which are listed below for your reference:
- “The General Theory of Employment, Interest, and Money” by Keynes
- “The Art of the Deal”, collection of Keynes articles, published in China only
- “Keynes’s Way to Wealth” by John Wasik
- “Investing with Keynes” by Justyn Walsh
- “Keynes and Market” by Justyn Walsh
- “The Keynes Mutiny” by Justyn Walsh
Investment style
The father of macroeconomics
Keynes is best known as a macroeconomics economist, but few know that he was also a talented value investor.
He was born into a historical period marked by the economic collapse of 1929, the Great Depression of the 1930s, and the world wars. Despite these challenges, he achieved a stunning return on investment.
Value investor
“My purpose is to buy securities where I am satisfied as to assets and ultimate earnings power, and where the market price seems cheap in relation to these,” Keynes said.──Isn’t this a value investor? Yes.
A speculator in his early years
Before 1929, he was a macro speculator, always trying to figure out whether the market was going up or down. He did suffer losses in the crash—losses that prompted him to change his investing approach.
He shifted his focus from speculating on overall market trends to analyzing the companies in which he invested.
Investment style changed
After the 1929 crash, Keynes lost 80% of his personal wealth, but he learned valuable lessons. He realized that trying to predict overall market trends was too difficult because markets are inherently unpredictable and capricious.
When he understood this, he changed his investment philosophy, his personal wealth, and the funds he managed.
Keynes’s three investment principles
In a memorandum from May 1938, he summarized his own investment philosophy. Keynes used the following words (the text parts marked in quotation marks, bold, and italics below) to briefly and concisely describe his investment philosophy–three basic principles. Please carefully repeat the these three principles. Do it looks familiar?
Carefully selection
“A careful selection of a few investments (or a few types of investment) having regard to their cheapness in relation to their probable actual and potential intrinsic value over a period of years ahead and in relation to alternative investments at the time.”
He carefully selects investments, considering whether they are cheap relative to their current intrinsic value and their potential future intrinsic value. He also compared each investment to alternatives.
In other words, he will only buy stocks when the company’s actual value (intrinsic value) is significantly higher than the stock market price.
Holding for long haul
No matter how volatile the market is, hold on to large positions, perhaps waiting for several years until they realize their expected returns, or until there is clear evidence that the original decision was wrong.
Keynes was a patient, long-term investor. The stock market sometimes crashed, and Keynes learned to remain calm in the face of such situations. As As he famously said, “The markets are moved by animal spirits, not reason.”
After 1929, he understood that there was no logic to how high or how low a stock could go. This is because the stock market can sometimes behave irrationally, driven by greed or fear. As an investor, you need to tolerate these fluctuations and hold your investments rationally.
“I should say it is from time to time the duty of a serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself,” Keynes said.
A balanced portfolio
Keynes said that investors should hold investments with opposed risks.
Keynes had some large investments, but they were well balanced against each other, allowing him to face different types of risk.
When he made international investments, he tended to favor small and medium-sized stocks and avoid IPOs of technology stocks (technology stocks at that time usually referred to the automobile industry).
A concentrated investors
Disappointed with his performance, he switched to a stock-picking strategy in the 1930s, opting for a concentrated portfolio.
He said: “As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.”
After 1930, he usually held positions for at least three years. He was sometimes criticized for holding too few positions. In response to this, he apologized in a sarcastic way, “I have always had the illusion that one share of good is safer than ten shares of bad.“
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- “Investment vs speculation“
- “Jim Simons, the lord of quantitative investing“
- “How to research successful investment masters?“
- “The career annualized return on investment of top investment masters“
- “Why Buffett deserves further study“
- “The Chronicle of Buffett Partners “Warren Buffett’s Ground Rules“
- “John Maynard Keynes, Investment master“
- ““One Up on Wall Street”, Peter Lynch’s great book for investing newbie“
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