Salient to Investors:

John Maynard Keynes wrote in 1934: “As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.” And: “It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.”  Both Buffett-style tenets.

David Chambers and Elroy Dimson of Cambridge’s Judge Business School tracked Keynes’ management of the King’s College Cambridge endowment.  By August 1929, the Discretionary Portfolio lagged behind the UK equity market by a cumulative 17.2 per cent. Keynes failed to see the 1929 stock market collapse coming.

Keynes changed from trying to anticipate macroeconomic trends to investing in, and holding onto to, undervalued stocks, particularly those with generous dividends and distressed companies with the prospect of recovery. The Discretionary Portfolio lifetime performance rose to a 16 per cent annual return, versus 10.4 percent for the market as a whole.

Keynes advanced the idea that equities were a fit investment for the likes of King’s College, at a time when any respectable investor would have stuck to property and bonds.

Keynes was very well connected, particularly in the mining sector, where he invested heavily and successfully. Insider trading back then was legal. E.g. in 1925, Keynes received advance notice that the Bank of England’s interest rate was to change.

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