Keynes

Keynes the stock investor

Keynes’ UK stock portfolio out-performed the overall stockmarket by an average of eight percentage points each year. However, Keynes struggled in the 1920s and it was only after he radically shifted away from a top-down, market-timing to a buy-and-hold, stock picking approach in the early 1930s that his performance improved dramatically.  

Keynes stayed true to his commitment to equities. When the London stock market fell sharply in 1937-38 he resigned as chairman of an insurance company – one of several financial institutions with which he was associated – when the rest of the board were unwilling to stick with his strategy. 

Following the 1929 Wall Street Crash, Keynes, having suffered heavy losses, sold a fifth of his UK equity holdings and switched investments into government bonds – an understandable and conventional response. But when the market declined sharply again in August 1937, he instead made some modest additions to his UK equity positions and maintained his overall equity allocation at above 90%.

Keynes’ strategy was also informed to some extent by his personal network, including senior managers within some of the companies in which he invested. This has led some to suggest he may have benefitted from insider trading, which was not illegal at the time. Chambers and Dimson argue that even if Keynes did make use of what today would be regarded as private information when monitoring his favorite stocks, he did not do so for short term gain. 

Chambers suggests that Keynes techniques should encourage today’s investment practitioners, especially those with a relatively long time-horizon, to have similar confidence in their investment decisions.

Keynes the currency trader

Research into currency trading during the 1920s and 1930s reveals the existence of substantial profit opportunities for currency speculators during this period. Keynes actively invested in stocks for his Cambridge College, he also traded stocks for himself and this raises the question of whether he engaged in hedging the currency exposure of his stock portfolio.

Although Keynes did not invest in any European stocks, his shorting of European currencies was not at all related to currency hedging needs. His personal stock portfolio was entirely invested from 1919 to 1923 in UK stocks and from 1924 to 1927 he only had a very small three per cent allocation to US stocks. Between 1932 and 1939, his average allocation to US stocks increased to 34% of his stock portfolio. He began his career as a currency speculator with a high level of confidence; however his confidence in his exchange rate forecasts faded over time. 

Research analysis of Keynes’ correspondence and memoranda from the 1930’s indicate he became increasingly pessimistic, as he realized the great difficulty in predicting currency movements.  

The research provides a number of examples of how he derived his views on a currency from his evaluation of its underlying fundamentals, however there were no examples indicating the possibility that he followed simple technical trading rules. 

Keynes achieved positive cumulative profits over both periods he traded and appeared to possess skill in predicting exchange rates over long horizons, however the research concludes, he would have achieved higher profits in the 1920s if he had followed simple technical trading strategies rather than his own discretion. 

Keynes the art investor

John Maynard Keynes’ many writings on the stock market are well-known. As well as being fascinated by financial markets and economics, Keynes was attracted to the arts. He was an avid collector of artwork, books, and manuscripts and built up a fine collection during his lifetime. Keynes purchased artworks through various channels between 1917 and 1945.  

Keynes was a lover of the arts, a stern supporter and patron of British Artists, and enjoyed the company of many creatives of this genre in his time. He was greatly influenced in his artistic tastes and collection by other members of the Bloomsbury Group—a collective of British intellectuals and artists. He was however “motivated in his purchases by the idea of art as an investment” (Scrase and Croft, 1983).

Following his death and the death of his wife Lydia, Keynes’ entire art collection was bequeathed to King’s College, in Cambridge. This collection consists of over a hundred pieces by various artists, including Modern Masters such as Braque, Cezanne, Matisse, Picasso, and Seurat. It has remained intact to the present day, with the pictures being hung at the College and at the Fitzwilliam Museum in Cambridge.