Successful investors: Sir John Maynard Keynes

In this new series of articles, successful investors are honored. The life of these successful investors will be described briefly. And naturally the investment methods of these successful investors will be explained. This way, you can get an insight in how these investors became successful and what you can learn from these successful investors. The first article in this new series: Sir John Maynard Keynes.

Sir John Maynard Keynes

Most people will know Sir John Maynard Keynes as an economist. He was a strong supporter of the free market and capitalism. Keynes has had a large influence on the western world, both on businesses and governments.

Keynes also was a private and professional investor, besides his work as scientific economist. Although Keynes had ups and downs in his investments, he died as a rich man. During his life, Keynes has been very rich several times, but he also almost went bankrupt.

The life of Sir John Maynard Keynes

Sir John Maynard Keynes was born in 1883 and died in 1946. So during his life, Keynes experienced both of the World Wars. More specific, he was very involved on the settlement of the first World War.

Keynes was a scientific economist. He has written some influential books about, amongst others, capitalism and the involvement and influence of government on the free market. Most of his books have become bestsellers, like 'A treatise on probability' (1921) and 'The general theory of Employment, Interest and Money' (1936).

His position as scientific economist lead to his involvement in the settlement of the first World War. But Keynes did not agree with the financial settlement of this war. Het predicted that Europe will become politically unstable, if the losers of the war (like Germany) should pay for all of the costs of the war. This was the reason that Keynes abandoned the negotiations prematurely. In the end, the financial settlement of the war would be one of the main reasons for the second World War to start.

Financially, Keynes was not always successful. He has gone almost bankrupt for three times.

The first time, Keynes gambled against the return of England to the Golden Standard. He was against linking the English pound with the value of gold. Keynes would lose a lot of money when England returned to the Golden Standard in 1908.

The second time Sir Keynes would lose a lot of money, was when he speculated against the war. Keynes did not expected a war to exist in the 1910s. But the war came and the investments of Sir John Maynard Keynes declined in value.

The Great Depression of 1929 was the third time that Keynes suffered a great financial loss. Keynes did not foresee this crisis. After the first World War, Keynes had earned a lot of money, both for himself as for others. Before 1929 his investment fund was very successful. But Keynes, and many others, lost most of this in and right after 1929.

Before the crisis of 1929, Keynes was a speculator, a gambler. He gambled on the developments he was expecting. Keynes tried timing buying and selling shares. After the crisis, Keynes became a value investor. He screened companies based on fundamental (financial) values. This made Sir John Maynard Keynes a truly rich man.

The investment method of Sir John Maynard Keynes

The investment method which mad Keynes rich, was the fundamental method of value investing. He focused on the income of companies. Besides that, Keynes only invested in companies with a true competitive advantage. Keynes thought that companies should be able to secure their income over long periods of time.

Keynes was also not blind for the current sentiment. He invested against the current sentiment, and thus was a contrarian investor. He bought the companies that were unpopular at that moment, and did not even look at the popular companies. He thought that the popular companies were too expensive.

In 1938, Sir John Maynard Keynes wrote his manifesto for successful investing:

  • Select a limited number of investments carefully. These investments should have a low valuation relative to their intrinsic value and probable value over time. Compare these investments with alternative investments.
  • Keep a firm stance on your investments. Hold the selected investments through good and bad times, until the promise of value is met or it is clear that you have done a bad investment.
  • Build a balanced portfolio. Balance the different and preferably opposite risks.

Another aspect that Keynes was aware of, was the dividend yield. Companies that paid a high dividend, were Keynes' favorite.

As mentioned, Sir John Maynard Keynes was not a trader in his later days. He hold on to companies he thought were undervalued, even when the price went down. Keynes also limited his investments to companies of which he understood the revenue model. He did not believe that dividing his money over more investments would reduce the risk he would run.

The above mentioned investment method made Sir John Maynard Keynes one of the most successful investors ever.

On this site, you can find tools that can help you to invest just like Sir John Maynard Keynes did: