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Keynes the Investor

John Authers of the FT wrote an interesting piece on John Maynard Keynes the investor. An era of non-Keynesian policy has culminated in a classic liquidity trap in which lower interest rates to stuimulate growth in the economy has little or no effect. Nowadays Keynes is back in fashion but how did Keynes the investor perform? In his early years he was a familiar figure in the City of London, where he made a fortune in the stock market, lost it all, and made it back again. Recently an academic publication analysed Keynes’ record an an investor and from 1924 to 1946 he managed the endowment fund of King’s College, Cambridge. The chart shows that any 100 that Keynes invested at the outset would have been worth 1,675 by his death in 1946. But what is significant about his performance as an investor was that the economic environment at this time included the Crash of 1929, the Depression and World War II. As John Authers alludes to, it is difficult to compare Keynes with investors today but if you take long-term illiquid investments like forestry, real estate, private equity and hedge funds you can get a more valid comparison. The table below shows that the return on investment by Keynes was higher than that of the market under similar conditions i.e. equity growth.


If you compare him to Warren Buffet and his main investment Berkshire Hathaway, Keynes’ King’s endowment did better – see graph.

How did he do it? Was it Animal Spirits?

* he invested in equities – no one wanted to invest in this area therefore inefficiencies were prevalent and profits could be made
* he steered clear of diversification
* put fairly large sums of money into enterprises that he knew something about

Keynes could see when he made a mistake, deal with it, and modify his behaviour.

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