John Maynard Keynes: The Money Manager

Chances are you've been hearing more lately about the late economist John Maynard Keynes. But I'd like to dwell on his success, much less well known, in managing money. I first heard of Keynes being a successful investor from Warren Buffett some years ago.

Keynes managed portfolios for King’s College, Cambridge and the National Mutual and the Provincial Insurance companies. His performance for King's College was especially impressive. He took over running money for the college in the 1920s:

Keynes spent half an hour each day on stock market research - in the morning, still in bed - studying company reports, reading the financial sections of the newspapers and speaking to his various brokers by telephone.

The Chest’s initial capital was £30,000. By the time Keynes died in 1946 the fund had grown to £380,000 - an annual compounding rate of just over 12 percent.

As the linked piece states, that might not sound all that great, but it is remarkable considering this time period includes the 1929 crash and the run up to WWII -- both disastrous for the British stock markets. The market fell 15% over the same period. What's more, Keynes' performance is due to capital appreciation only (dividends were not reinvested).

Before anyone thinks Keynes track record as an investor should be considered an endorsement of his economic theories, it's worth noting Keynes apparently didn't himself:

His investing philosophy changed over time - Keynes began to doubt his initial belief that he could profit from his broad understanding of economic cycles. He grew to favour making large investments in individual businesses. Keynes was a logical man and individual businesses had balance sheets he could study and they sold products or services whose value he believed he could objectively assess.

I'm not saying anyone should or shouldn't admire Keynes the economist. I am simply saying his success at managing money is apart from that. Some more from the linked site:

Like Buffett, Keynes was sometimes criticised for investing in stocks he believed would prosper in the longer term and then sticking doggedly with his selections despite shorter-term problems. Increasingly, Keynes grew to favour a contrarian style of investing, writing in 1937:

“It is the one sphere of life and activity where victory, security and success is always to the minority and never to the majority. When you find any one agreeing with you, change your mind. When I can persuade the Board of my Insurance Company to buy a share, that, I am learning from experience, is the right moment for selling it.”

If you like all this, check out Keynes' thoughts on managing concentrated portfolios. And here's a 1991 Berkshire Hathaway shareholder letter where Buffett praises Keynes.

Comments

[David]

Good post, John.

Although we currently seem to be facing another cycle of bad times and awful government interventions in the economy, spurred on largely by a widespread belief in the Keynesian economic doctrines of the 1930s, it's interesting to hear about Keynes' success as an investor. I've always been interested in this aspect of his life, and will be sure to check out those links.

[Cameron Byrnes]

Might be worth checking out the biographies of Keynes by Donald Moggridge, Roy Harrod or Robert Skidelsky, and also the book by Donald Markwell on Keynes and economic paths to war and peace.

[John]

David: Thanks for the comments. Regardless of what anyone thinks of Keynes as an economist, we should all admire his investment record, especially since it was established over such a treacherous time.

Cameron: I actually saw Skidelsky in an hour-long interview with Brian Lamb on C-SPAN (I believe he's written a three-volume biography of Keynes). Was interesting and I'm sure Keynes was an interesting man. I probably won't read any of the biographies. But I'd like to read a collection of his letters to shareholders of the insurance companies.

[Ethan Bloch]

JMK = The first focus investor, "He grew to favour making large investments in individual businesses. "

@John Aside from the book you've brought to my attention, I will prob read one of JMK biographies and will let you know my thoughts :p

Cheers.

Ethan