Review -- Keynes and the Market by Justyn Walsh
How the Worlds Greatest Economist Made a Fortune on the Stock Market
The author explores Keynes evolution from speculator to investor and identifies the key investment principles that allowed Keynes to make a personal fortune and to significantly grow the King's College Fund. This exploration has a number of touch-points with Keynes' public life and contemporary world events including the tumultuous period from World War I to the end of World War II.
John Maynard Keynes the Economist
Keynes was an aristocrat and part of the bohemian Bloomsberry group, a group of people that discussed art, ideas and the meaning of life. Perhaps the most notable event in his earlier life was in 1919 when Keynes resigned at the "Carthaginian peace" imposed on the vanquished nations. Those reparation discussions of world leaders with Germany following World War I were attacked in a subsequent essay The Economic Consequences of the Peace. Keynes made a number of disparaging remarks about the Treaty of Versailles and the key characters. In particular, he predicted the harsh economic yoke would cause Germany to suffer and that the treaty would not last. Whilst ignored at the time he was proved right in time.
Speculator in Currency and Commodity Markets and the Great Depression
During this period in the 1920s Keynes was notably a speculator and backed his economic ideas in the currency markets and also the stock markets with some success. However, over time he started to move from a momentum trading approach to thinking about credit cycle investing. This approach was to select companies that would do well during the economic cycle and rotate through them as the cycle progressed. However, losses in commodities ended up causing Keynes to significantly reduce his stock market exposure and this was lucky because in October 1929 the market entered the Great Depression
Evolution to Value Investment
The experience of the markets and especially the Great Depression led to Keynes creating his most significant work: The General Theory of Employment, Interest and Money, published in 1936. He attacked the efficient market theory and noted the importance of uncertainty and this influenced his ideas about intrinsic value. It was also in the late 1920s and the 1930s that the thoughts about market "Game Players" and financial investment evolved to a value investment approach that focused on the search for "stunners" and was explained in a 1938 memorandum to the King's College Estates Committee. The key elements in a very abridged form:
- Careful selection of a few investments...regard to their cheapness...to...intrinsic value
- Steadfast holding...through thick and thin...either... fulfilled their promise...or...purchased on a mistake
- Balanced investment position...variety of risks in spite of individual holdings being large...
Keynes and the Market
Keynes financial investment principles are well explained and the author further expands on them to six key principles and relates them to Warren Buffet's investment philosophy by interspersing Buffet quotes. This gives the impression that many of Keynes's investment ideas have been taken up by the world's most famous and successful investor. This is not a how-to book but it is well-written and presents a clear picture of Keynes and his key economic and investment ideas. Well worth reading.
Keynes and the Market: How the World's Greatest Economist Overturned Conventional Wisdom and Made a Fortune on the Stock Market by Justyn Walsh. Wiley 2008. ISBN: 978-0-470-28496-4
John Maynard Keynes by Jutyn Walsh
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