I don’t normally wish to speak ill of the dead, but with John Maynard Keynes I will make an exception. What has brought it to mind is this article today in The Australian: Investors could learn from economist John Maynard Keynes – and Winston Churchill. They do, however, admit at least this much.
A brilliant and well-connected academic, [Keynes] began as a speculator in the 1920s and initially did very well in a period that looks very much like our own, where new technology companies (auto and aircraft companies) spurred a speculative boom on wider markets.
In 1928 he had amassed a fortune of £44,000 but after the Wall Street crash of 1929 his fortune had shrunk to £8000. It is how he rebuilt his position and became a convert to what we now call value investing that is the kernel of the story. Over the next three decades Keynes evolved a system of watching and waiting for stocks he believed were undervalued by the market. He called them “stunners” and once he fixed on a bargain he went in big time.
Of course it didn’t hurt that by the 1940’s he was working inside Treasury and helping to design the budget which is part of the reason why he was able to die a wealthy man at the end of the War. But he took a bath not just in 1929, but in 1920 when he took down much of his family and many of his friends, as recorded here: John Maynard Keynes ‘a great economist but poor currency trader’.
The study found that Keynes “experienced periods of considerable losses in both the 1920s and 1930s. Indeed, he was close to being technically bankrupt in 1920 and could only stay trading thanks to his ability to borrow funds from his social circle.”
And even that understates just how catastrophic his losses were. And this was a man who worked in The City for almost all of his working life. The academic world for him was just something he did a few months a year. The General Theory is as bad for our wealth today as his speculations were for him and others while he lived. It really does irritate me to read about what a financial genius Keynes was when he was anything but.