Part 1 (1/2)
Keynes and the Market
by Justyn Walsh
Introduction
John Maynard Keynes conferred a distinct glae don, keyauthor, husband of a world - faovernment adviser, ennobled member of the House of Lords, andresponse to the doldrums of the Great Depression - ” The patient needs exercise, not rest ” - heralded the Keynesian era of ed capitalism and pump - primed Western econ-omies Renowned almost as or, style, and intelligence hich they were advanced, Keynes delighted in assaulting conventional wisdoent prose as his weapon of choice
Despite affecting an aristocratic disdain for the profession of , Keynes was also an incredibly successful stock ely accrued through his investment activities - amounted to the present - day equivalent of 30 e fund administered by Keynes recorded a twelve - fold increase in its value while under his stewardshi+p, a period during which the broader es failed even to double
In his role as chairman of one of Britain ' s most venerable life assurance co to a journalist at the tiarded by the City that his prediction of a trend was enough to jiggle the stock market” Keynes was that rarest of beasts - an econo- clambered down from his ivory tower, mastered thenancial markets in practice as well as in theory
Notwithstanding his nancial success, one ht reasonably query how an analysis of Keynes ' stock market techniques can pro t the modern investor Keynes was, after all, a child of the Victorian era and died over half a century ago He lived in a different, more decorous ti hie of ” the inhabitant of Londonsipping hiswhether to ” adventure his wealth in thenew enterprises of any quarter of the world” He invested in whaling companies and other now - defunct industries, and was directed by editors to ensure that his th to allow readers to work through at least three glasses of port Redolent as he is of another age, is there anything to be gained from an appraisal of Keynes ' investment principles in this era of day traders, delta ratios, and dot - co ” yes ”After a couple of false starts, Keynes alighted on a set of precepts that won hi investment career, he declared with characteristic immodesty that: The nancial concerns where I have had my oay have been uniformly prosperousMy difculties innancial quarters all through have been the difculty of getting unorthodox advice accepted by others concerned
These unorthodox tenets anticipated, to a reree, the invest-ment philosophies of some conspicuously successful contemporary ” value investors,”that Keynes ' ” brilliance as a practicing investor ht,” Buffett has on a nulish economist Just as importantly to the modern reader, Keynes ' observations were set out in the lihtly acclaimed As his friend, the newspaper baron Lord Beaverbrook, averred, Keynesliterature out ofnance ” - truly a Herculean feat
Keynes ' upbringing and personal philosophy deeply in uenced his attitude toward ation of the man ' s investment principles must, therefore, also chart some of the key land-marks of his life One of Keynes ' closest friends, the iconoclastic Lytton Strachey, rerapher was to:row out over that great ocean of material, and lower down into it, here and there, a little bucket, which will bring up to the light of day some characteristic specimen, from those far depths, to be examined with a careful curiosity
Our inquiry is necessarily very focused-ill be hauling to the surface those ” characteristic speci chie y to Keynes ' invests, hopefully at least a avor of Keynes ' ample life will also be conveyed to the readerTo extend Strachey ' s aze beyond the objects of our immediate scrutiny and toward the expansive, sometimes turbulent ocean that constituted the life of John Maynard Keynes
Chapter 1
The Apostle Maynard
The Worldly Philosopher Soe fortune left by Lord KeynesYet Lord Keynes was one of the few economists with the practical ability to make money
-FINANCIAL TIMES, September 30, 1946 In September 1946, ve months after his death, the bequest of John Maynard Keynes was made public His net assets totaled just under 480,000, or around 30 h Keynes had secured a nu City institutions and had received considerable royalties froreeted news of his fortune He had, after all, spentsix years as an unpaid Treasury adviser; his parents had outlived hireat arts patron, had funded ested in the sales of the Financial Ti that contributed to the bulk of his riches Keynes ' facility with' s College - Keynes ' spiritual, intellectual, and sometimes temporal home - was also a bene ciary of his nancial acumen In its obituary on Keynes, the Manchester Guardian reported that: As bursar of his own college in Caehe was conspicuously successful, and by bold and unorthodox reatly the value of its endowh little known to the wider world, in certain circles Keynes ' investe bursars e, where Keynes would lounge Buddha - like and regally iue noted that ” such was his inuence in the City and his rep-utation abroad ” that markets would move in response to his speeches delivered as Chairman of the National Mutual Life assurance Society He sat on the boards of numerous invest conviction of a papal nuncio, declaiovernment economic policy
This aspect of Keynes - the shrewd investor, the canny player ofnancial ht of the man ' s early life and beliefs Keynes was an aesthete, his rst allegiance to philosophy and the art of living well At school and university he displayed little interest in worldly matters, and for the remainder of his life exhibited an intensely ambivalent attitude to the pursuit of wealth He believed in Francis Bacon ' s dictuood servant but a bad master - in Keynes ' formulation, money ' s merit lay solely in its ability to secure and reeably and well” Like econo other than ” alittleto an examination of Keynes ' investment activities and techniques, a brief survey of the early in uences on the h Keynes did not take up speculation and investing with any particular ardor until his mid -thirties , the attitudes that shaped his views on ely formed in his early years
Enter the Hero I like the naested - John Maynard Keynes sounds like the substantial narandfather, June 6, 1883 In the late nineteenth century, Britain was still the world ' san empire on which, famously, the sun never set Other than occasional episodes of colonial disobedience, it had been decades since Britannia had been obliged to ourish her spear at an enemy of any substance Before the Crieneral European con ict was the Battle of Waterloo in 1815, in which the United Kingdolory Co century, the Victorian era was a remarkable oasis of peace
Emboldened by Adam Smith ' s paradoxical doctrine that sel sh private actions transmuted into public virtues, and later by Darwin ' s observations on natural selection and survival of thettest, n de si e cle British society eovernmentThe spirit of competition and endeavor pervaded Queen Victoria ' s nation Notwithstanding attacks on the anks by the likes of Oscar Wilde and George Bernard Shaw, Britons fervently believed in the virtues of duty, hard work, and thriftThe stiff upper lip would, just occasionally, quiver and curl into a slight smirk of satisfaction when the British contemplated the patent superiority of their race
Into this world of security, prosperity, and solid bourgeois values came John Maynard Keynes He was born in June 1883 in the univer-sity town of Cae, his father an economics fellow at the University and his raduates Maynard, as he was known to fas who thelish public life - Geoffrey, later an erapher, and husband to Charles Darwin ' s granddaughter; and Margaret, like her mother a prominent social reformer and destined to ed Boy Education: the inculcation of the incomprehensible into the indifferent by the incompetent
-Keynes (attributed) Appropriately for one of the rst true offspring of Cae University - for it was only in the late 1870s that the ancient statutes preventing Ca were repealed - Keynes shone intellectuallyAfter a precocious childhood, bolstered by a rigor-ous study regimen devised by his father, Keynes secured a scholarshi+p to Eton College, school of choice for British royalty and the nation ' s elite Once at Eton, Keynesover sixty prizes during hisve years there Unlike some other Old Etonians such as Eric Blair - better known to the reading public as George Orwell - he also prospered socially and was elected College prefect in hisnal year at school
Even at Eton, an institution not generally known for the huree of intellectual haughtiness One schools to see him a little more dissatised, a little more ready to note the points in which he fails” Another observed that ” [Keynes] gives one the idea of regarding hied boy with perhaps a little intellectual conceit” He was quick - witted and cutting - he wrote of one of Charles Darwin ' s sons that ” his hands certainly looked as if he ht be descended from an ape,” and complained that one particular schoolmaster was ” dull and soporiferous beyond wordsI shall not suffer from want of sleep this half” He e in equal contempt the ” absurd ” aristocracy and the ” boorish ” lower classes - only the ” intelligentsia,” of which the Keynes family was a prime example, commanded his respect
Like most other Establishment institutions of the tiard for coround for young gentleton famously, if apocryphally, afr -elds - and there was little rooallant trade of the businessman in this sanctu-ary of old - world valuesThe only hint of Keynes ' subsequent career as an economist and investor was the schoolboy ' s almost autistic preoc-cupation with lists and numbers - Keynes obsessively recorded cricket scores, train times, hours worked, variations in his body te poee Idyll The appropriate subjects of passionate contemplation and communion were a beloved person, beauty and truth, and one ' s prime objects in life were love, the creation and enjoye
-Keynes on the Apostles, MY EARLY BELIEFS On the back of a scholarshi+p to King ' s College, Keynes returned to Cae in 1902 to study mathematics and classics With custom-ary chutzpah, he announced in his freshood look round the place and coh a gifted y, and in late 1905 placed twelfth of those receiving a First Class degree While at university Keynes also found tiraduate year becae Union and president of the Liberal Club
The e was a secret society known to initiates as ” the Apostles” This group recruited froenstein, and Bertrand Russell were fellowprinciples were best expressed in G E Moore ' s Principia Ethica, pub-lished during Keynes ' rst year at Cae Moore ' s philosophy was profoundly nonmaterialistic and unworldly - Keynes once commented that, in comparison to the Principia, ” the New Testae acades, which we know or can ihly described as the pleasures of human intercourse and the enjoyment of beautiful objects
Many of the Apostles applied a very particular interpretation to Moore ' s endorsement of the pleasures of human intercourse In the cloistered and covert world of the society, where aesthetic experience and intimate friendshi+ps were paramount, relations often transcended the merely pla-tonic Keynes reminisced many years later that ” we repudiated entirely customary nized no ation on us, no inner sanction, to confor aloof from the masses, the Apostles developed a superior-ity complex to match the belief that only they possessed the requisite sensitivity to truly appreciate the ner things in life Keynes likened the group to ” water - spiders, gracefully skiht and reasonable as air, the surface of the stream without any contact at all with the eddies and currents underneath” Others, less charitably, dis Moore ' s philosophy into ” awhat you like and what other peo-ple disapprove of”
An India Man Cecily, you will read your Political Economy in my absenceThe chapter on the Fall of the Rupee you may omit It is somewhat too sensational
Even these metallic problems have their melodramatic side
-Oscar Wilde, THE IMPORTANCE OF BEING EARNEST Reality eventually intruded into Keynes ' life and, after graduating inconfronted hiree in econoiven by Professor Alfred Marshall, a personal friend of the Keynes family and probably the world ' s most inuential economist at the time Despite Marshall ' s entreaties - ” I trust your future career may be one in which you will not cease to be an economist,” the Professor iovernust 1906 he sat for the nationwide Civil Service examination, where he placed second overall Ironically, his worstKeynes to remark that ” the examiners presumably knew less than I did”
Unable to secure his rst choice of govern in thethe India Ofce as a junior clerk in October 1906 In those days of the ” gold standard ” - the convention then prevailing in e rate was deterold - India ' s rather less domesticatedtheoretical economists, and may have been inuential in Keynes ' career choice Despite the alleged allure of the ularly unexciting Unedifying tasks such as arranging the shi+pnment, undoubtedly presented a rude contrast to the rare ed clie
The Bloo neere in the van of the builders of a new society which should be free, rational, civilized, pursuing truth and beauty It was all tre
-Leonard Woolf on the Bloo the dullness of the Civil Service was the loose anductuating coterie of artists, writers, and philosophers who coalesced at the resi-dence of Virginia Woolf and her siblings Like the Apostles before thearden squares and grand houses - reveled in confounding the traditional pieties and restraints of society A herald of the counterculture eois Bohemians, one ” Bloo in the springtiious, moral, intellectual, and artistic institutions, beliefs, and standards of our fathers and grandfathers
The group ' s willingness to slough conventional ht and behavior naturally extended to the more intimate domain of per-sonal relationshi+ps Bloomsbury affairs were notoriously labyrinthine and prickly - it was said that Blooles” Ro provided a diver-sion fro of life, and ifts in the serv-ice of less than genteel verbal assaultsVirginia Woolf, in at of pique, once likened Keynes to ” a gorged seal, double chin, ledge of red lip, little eyes, sensual, brutal, unih this outburst could quite possibly have been in response to Keynes ' gentle suggestion that she stick to non ction