Sunday, June 25, 2006

Thinking like John Maynard Keynes

Picture: Famed British Economist and Asset Manager John Maynard Keynes.

Not only was Keynes far ahead of his time on certain economic issues - including the establishment of a world bank with a world currency - but he was also a first rate investment manager. Managing the investment portfolio for for Kings College, Cambridge between 1928 and 1945, his investing acumen resulted in a return rate of 13.2% annually, a period that also covered the Crash of '29.

This compared to the general market in the U.K. (a local benchmark) declining by 0.5% annually over that same period.

Keynes had a couple of thoughts on investing that I intend to expand on over the next few days, so I thought I'd leave you with both to cogitate on:
"It is a mistake to think one limits one's risks by spreading too much between enterprises about which one knows little and has no reason for special confidence ... One's knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself to put full confidence."
and ...
"To suppose that safety-first consists in having a small gamble in a large number of different [companies] where I have no information to reach a good judgment, as compared with a substantial stake in a company where one's information is adequate, strikes me as a travesty of investment policy."

This is something I've talked about generally before, that is, having a "focused portfolio" to enhance your probability of outperformance. I'll explore one particular aspect of this in the near future.

Some other postings dealing with outperfomance are here and here.


The Confused Capitalist

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