The focus on Keynes has always been on The General Theory and macroeconomics; however, there is also another side of the brilliant Keynes, his life as an investor. There have been a number of papers and books on his active investments skill which also show an interesting evolution as an investor. Much of this analysis of his investment skill can be found in the simple book, Keynes's Way to Wealth: Timeless Investment Lessons from the Great Economist by John Wasik.
Keynes was a hedge fund manager, an insurance company portfolio manager, a private speculator/investor, and he ran the endowment for his college. He was an active commodity speculator who tried to create an information edge through his active research of markets. He used his knowledge of international finance to actively trade currencies. He used leverage to increase his risk when he thought he had a edge. He acted no different than an active global macro hedge fund manager.
When the rest of the market believed that endowments should only invest in high quality bonds, he actively increased stock allocations. Through to the mid-1930's he was an active macro manager through trying to play the credit cycle and to find the best asset allocation mix across a broad set of markets. His views to investments included a focus on maintaining purchasing power, looking at commodity supply and demand as well as imbalances between savings and investments. He built portfolios that included what he called "opposing risks" which is an early way of thinking about diversification and hedging.
His portfolios as reviewed by a number of researchers were able to beat the markets but he also took on large risks. He was not afraid of holding assets for which he had strong convictions even if that led to substantial drawdowns.
Keynes was also a complex investor because he changed his style to managing money in the 1930's. He moved over time from a macro trader of credit cycles to one that focused on long-term value. He clearly moved from trading market beta and taking large risks to a strategy that focused on finding intrinsic value with a focus on stock picking through understanding cash flows.
The keys to Keynesian investing are simple:
1. Stocks win in the long-run. Consistent with current thinking on risk premia.
2. Speculation is dangerous because it is based on the premise of superior information.
3. Need to think in terms of probabilities and not certainty.
4. Opposed risks will help balance a portfolio. Diversification is good.
5. Look for value.
6. Dividends do not lie and critical when determining value.
7. Don't follow the crowd.
8. Invest for the long-run.
9. Do not over trade.
10. Enjoy life; drink Champagne.
Whether it be "animal spirits" or the "beauty pageant" analogy, Keynes was a path-breaker on thinking about investing from the macro, fundamental relative value, and market sentiment perspectives. He embraced capitalism and the investment game with a passion that would surprise any trader.
Keynes was a hedge fund manager, an insurance company portfolio manager, a private speculator/investor, and he ran the endowment for his college. He was an active commodity speculator who tried to create an information edge through his active research of markets. He used his knowledge of international finance to actively trade currencies. He used leverage to increase his risk when he thought he had a edge. He acted no different than an active global macro hedge fund manager.
When the rest of the market believed that endowments should only invest in high quality bonds, he actively increased stock allocations. Through to the mid-1930's he was an active macro manager through trying to play the credit cycle and to find the best asset allocation mix across a broad set of markets. His views to investments included a focus on maintaining purchasing power, looking at commodity supply and demand as well as imbalances between savings and investments. He built portfolios that included what he called "opposing risks" which is an early way of thinking about diversification and hedging.
His portfolios as reviewed by a number of researchers were able to beat the markets but he also took on large risks. He was not afraid of holding assets for which he had strong convictions even if that led to substantial drawdowns.
Keynes was also a complex investor because he changed his style to managing money in the 1930's. He moved over time from a macro trader of credit cycles to one that focused on long-term value. He clearly moved from trading market beta and taking large risks to a strategy that focused on finding intrinsic value with a focus on stock picking through understanding cash flows.
The keys to Keynesian investing are simple:
1. Stocks win in the long-run. Consistent with current thinking on risk premia.
2. Speculation is dangerous because it is based on the premise of superior information.
3. Need to think in terms of probabilities and not certainty.
4. Opposed risks will help balance a portfolio. Diversification is good.
5. Look for value.
6. Dividends do not lie and critical when determining value.
7. Don't follow the crowd.
8. Invest for the long-run.
9. Do not over trade.
10. Enjoy life; drink Champagne.
Whether it be "animal spirits" or the "beauty pageant" analogy, Keynes was a path-breaker on thinking about investing from the macro, fundamental relative value, and market sentiment perspectives. He embraced capitalism and the investment game with a passion that would surprise any trader.
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