Keynes: One Mean Money Manager

A few weeks ago Jason Zweig from the WSJ had a piece featuring the renown economist John Maynard Keynes.  However the piece did not focus on Keynes monetary views which are always hotly debated but rather his storied career as a portfolio manager which most people do not discuss.


According to the article David Chambers and Elroy Dimson, finance scholars at the University of Cambridge and the London Business School, respectively, have spent much of the past few years picking apart Keynes's portfolios.  They found Keynes investment style to be quite the contrarian and was focused on holding a small concentrated portfolio for the long-term.  


Keynes relied up flexibility, resilience and independence in order to rack up a performance record that beat the UK stock market by 8%from 1924 to 1946.  What I like about this piece and Keynes investment approach was that was not not tied to any one "style box" when it came to investing quite similar to how we run the DWCM fund.  Keynes like ourselves at DWCM do not limit ourselves to growth vs. value or small vs. large cap investing mantras.  We are a go anywhere fund where we see value that is what we invest in.

Via the WSJ

• A new analysis of the investment performance of John Maynard Keynes proves that the famous economist also was one of the greatest investors of the past century. By understanding what made Keynes such a star, investors can get a firmer grasp on why so many of today's money managers seem so dim.
• David Chambers and Elroy Dimson, finance scholars at the University of Cambridge and the London Business School, respectively, have spent much of the past few years picking apart Keynes's portfolios.   They have found out that Keynes's returns were extraordinary. How he achieved them was even more remarkable. (To read the research paper,click here.)
• From 1924 through 1946, while writing numerous books and overhauling the global monetary system, Keynes also found time to run the endowment fund of King's College at Cambridge.   Over that period, according to Messrs. Chambers and Dimson, Keynes outperformed the U.K. stock market by an average of eight percentage points annually, adjusted for risk.
• Keynes began as what we would today call a "macro" manager, relying on monetary and economic signals to rotate in and out of stocks, bonds and cash.  But Keynes wasn't a very good macro manager. He lagged behind the British stock market miserably until 1928, and he had 83% of his primary portfolio in stocks going into the fall of 1929.
• So Keynes made a series of radical changes: He switched from being a "top down" asset allocator to a "bottom up" stock picker. He tilted sharply toward undervalued small and midsize companies.

• Keynes also made titanic bets on industries he thought were cheap; by 1936, he had 66% of his portfolio in mining stocks and not a farthing in bank or energy shares. South African gold companies, he correctly foresaw, would benefit from falling currency values.
• Keynes wasn't only a pioneer in owning stocks when most big investors favored bonds. He also relished risk, concentrating as much as half of his assets on his favorite five holdings or, as he called them, his "pets." Keynes clung to his typical stock for more than five years at a time. Only partly in jest, he had proposed making "the purchase of an investment permanent and indissoluble, like marriage." (Today, the average U.S. stock fund has only 19% in its five biggest positions and hangs on to its typical stock for just 15 months.)
• Keynes was no mere contrarian. He was the epitome of his own definition of a long-term investor: "eccentric, unconventional and rash in the eyes of average opinion." To emulate Keynes, "you have to be idiosyncratic," Mr. Chambers says. "That's easy to say but much harder to execute."