Is your money where your mouth is?
One of the more frustrating aspects of reading pundits today is that when they write about investments they have little practical understanding. Economists discuss investing or enterprise as if it is the simplest thing in the world to structure a portfolio or build a profitable business.
Experienced folks know it’s not so easy. There are a million things that can go wrong. So one of my favorite economic writers is John Maynard Keynes. Lord Keynes is perhaps best known for his General Theory of Employment, Interest, and Money—a seminal work. But he also served as Bursar for King’s College, Cambridge, with broad discretion over their investments. During the period from 1924 to 1946, it is estimated that Keynes generated an annualized return of 16.0%, versus 10.4% for the UK equity market and 7.1% for their bond market.
His experience led him to formulate four general rules: market timing is impractical; a long-term view is critical; liquidity is often under-rated; and diversification dilutes returns—although it is safer. It’s easy to see the impact of this experience on his writing. When Keynes writes about animal spirits, for example, he’s explaining why it is so hard for investors to wait patiently for their returns—and also why some businesses thrive while others struggle.
Keynes was a successful investor with a long-term outlook who created a fortune both for himself and his beloved King’s College. He pioneered international investing, small-cap investing, and value investing. Perhaps one reason his economic legacy has been so lasting is that as a practitioner, he knows what he is talking about.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!