Part 8 (1/2)

(2) a steadfast holding of these in fairly large units through thick and thin, perhaps for several years, until either they have ful lled their promise or it is evident that they were purchased on a mistake;

(3) a balanced investment position, ie a variety of risks in spite of individual holdings being large, and if possible opposed risks (eg a holding of gold shares ast other equities, since they are likely to eneraluctuations)

In effect, Keynes proposed a for to run just ahead of the inconstantto pick the bull and bear tacks of the stock market before they actually happen, Keynes determined that a better approach for disciplined investors was to use the kinetic energy of an irrationalto s of sentiment, the value investor stands apart fro market and waits for it to overbalanceWhen excessive exuberance or pessirand - sla within his circle of coin of safety - can act decisively and coe amount of capital to the transaction

The Invest in his mind tted instantaneously into its place in the conict between Wisdoue on Keynes Keynes ' stock market activities were but one aspect of an enormously productive lifeAs The New York Times noted in its obituary on Keynes, in addition to his better known accomplishments as an econoly wide range of interests in otherelds: He was a Parliah order, a historian and devotee of e University, he founded an arts theatre there because he wanted to go to a good theatre A successful far stuffs

Drawing on his vast and divergent knowledge base, and emboldened by a refusal to walk the worn paths of convention, Keynes distilled a set of investreat personal pros-perity but also provided a teenerally

Keynes ' six key investment rules, which have been embraced by some of the world ' s est that the value investor should: 1

Focus on the estimated intrinsic value of a stock - as represented by the projected earnings of the particular security - rather than attempt to divine e in of safety- the difference between a stock ' s assessed intrinsic value and price - exists in respect of purchased stocks

3

Apply independent judg stocks, which may often imply a contrarian investnore the distractions of constant price quotation byof stocks

5

Practice a policy of portfolio concentration by coe sums of capital to stock market ” stunners ”

6

Maintain the appropriate te ” equanimity and patience ” with the ability to act decisively

Keynes ' investly simple, and may seem at rst instance to be little more than applied common sense, especially when compared to the elaborate mathematics and co does not rely on acade model ,” or ” optimized port-folios ” - rather, it focuses on just two variables: price and intrinsic value As Warren Buffett has reht years in divinity school and having somebody tell you that the ten command-ments were all that counted”

Keynes are of the insidious power of accepted wisdom, its ability to ” ramifyinto every corner of our minds” Despite recent incursions by new disciplines such as behavioralnance, orthodox theory obstinately asserts that nancial markets are broadly ef cient - as Buffett notes with palpable resignation, ” shi+ps will sail around the world but the Flat Earth society willourish” Yet the sustained success of value investors such as Maynard Keynes and, more recently,Warren Buffett is perhaps the ed by what one does on the round journey

-Keynes to a National Mutual board member, March 18, 1938 Keynes ' omnivorous interests in the wider world were matched by those in the nancial arena Not only was he involved in investment and speculation in various capacities - on his own account, as College bursar with a large degree of discretion, and as a board member with less inuence on invest activities enco lard to preferred stock Most importantly for our purposes, Keynes ' invested radically around the ti to a

This eclectic approach, although providing a broad base frohts the i an appropriate benchmark to assess Keynes ' stock market performance Some of Keynes ' nancial ventures, such as the PR Finance Conored on the basis that they were principally involved in currency or commodities speculation Others can be dismissed due to Keynes ' limited tenure as an investment adviser or board member - for example, Keynes left the AD Investment Trust, the rst investment company he founded with Foxy Falk, in late 1927, well before his transguration into value investor Likewise, Keynes effectively absented hiement role at the Independent Investned from his position as Chairs Keynes was hindered by institutional inertia and a stubbornly reactionary e to Keynes captures the frustrations of group decision - s usually very entertaining I like to hear the naked covetousness hich you recommend Southern Preferred Stock, the austere puritanisiversation of Ridley, who, agreeing with Lubbock, nevertheless votes with you because it is a poor heart that never rejoices and one must have autter soainst the stream ” more often than not met with erce resistance from his fellow board estions are too expensive, and all unorthodox are too unorthodox, so I aestion”

The Chest Fund As regards the Railway Stocks, I ah for Francis to be inclined to buy them

-Keynes to his stockbroker, January 1943 There were only two investment concerns that focused on stocks and in which Keynes retained a largediscre-tion The rst was the Provincial Insurance Company, a small co to Keynes Donald Moggridge, editor of Keynes ' Collected Writings, notes that: [Keynes] was an extrehout the years after 1930On investuidelines set by the board at its s and successfully persuaded therm of the virtues of equities

As Keynes observed with evident satisfaction in a ave a good thrashi+ng ” to comparable market indices while under his stewardshi+p Keynes ' in u-ence on the board declined, however, after 1940, when he was called back to the Treasury

The best bench Keynes ' stock e Chest Fund - for not only did it focus on equities, but ement of the fund remained with Keynes until his deathThe Chest Fund, established in June 1920 and capital-ized at 30,000, was one of the few college funds permitted to invest in stocks, and Keynes exploited this freedo 1931 as the base year - admittedly a relatively low point in the Fund ' s fortunes, but also on the assuan around this tihly ten fold increase in value in the fteen years to 1945, compared with a virtual nil return for the Standard & Poor ' s 500 Average and aof the London industrial index over the same period

This vast outperformance relative to coht of the fact that all inco works and the repayment of loans - in other words, the capital appreciation from 30,000 in 1920 to around 380,000 at the tiains on the portfolio An empirical study of the perforh far es, ” the Fund ' s performance was clearly superior to that of the market” The authors of the study noted that ” on the basis of modern performance evaluation measures, the evidence indicates that Keynes was an outstand-ing portfolio in”

The Positives Rule No 1: Never lose et Rule 1

-Warren Buffett Two broad trends are discernible in Keynes ' stock rapher Robert Skidelsky notes, ” the more directly under Keynes ' control the investments were, the better they performed,” the second is thefroe observes in his assesss: Whereas in the 1920s Keynes was generally less successful than theWall Street and London separately) outperfor years and did so cuin