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Photo of John Maynard Keynes. Photo credit: Courtesy of the Archive Centre, Kings College, Cambridge
Photo credit: Courtesy of the Archive Centre, Kings College, Cambridge
The difficulty lies not so much in developing new ideas as in escaping from old ones.
John Maynard Keynes

Researchers at the Centre for Endowment Asset Management, Cambridge Judge Business School, led by Dr. David Chambers, are working on a large scale project that explores the investment activity of John Maynard Keynes, as a stock investor, currency trader and art investor. The research analyses Keynes’ remarkable investment record both as a private investor and as the Chief Investment Officer of Kings College Cambridge over a period of a quarter of a century.  

Born 5 June, 1883 in Cambridge, Keynes was an investment innovator. During his lifetime he made a major contribution to the development of professional investment management. In addition to stocks, he traded currencies at the very inception of modern forward markets, as well as commodity futures. He was among the first institutional managers to allocate the majority of his portfolio to the then alternative asset class of equities. In contrast, most British (and American) long-term institutional investors at that time regarded ordinary shares or common stocks as unacceptably risky and shunned this asset class in favour of fixed income and real estate.

Beginning as a top-down portfolio manager, Keynes sought to time his allocation to stocks, bonds and cash according to macroeconomic indicators. He evolved into a bottom-up investor from the early 1930s onwards picking stocks trading at a discount to their "intrinsic value", a term coined by Keynes. Subsequently, his stock portfolios began to outperform the market on a consistent basis. 

Keynes also had a love of art and was interested in art as an investment. He built up a fine collection of art over his lifetime, which upon his death passed to King’s College Cambridge, together with major items housed at the Fitzwilliam Museum.

Although Keynes is known as a great economist, very little is known about Keynes as an investor. An almost-complete record of Keynes’ trading activity, which has until recently remained dormant in the King’s College Archives, offers a rich resource to utilise and reconstruct Keynes’ investment decision-making. 

How did Keynes perform as an investor?

Further information on Keynes as an investor can be found in a post on the CFA institute's blog.

Read the blog
Successful investing is anticipating the anticipations of others.
John Maynard Keynes

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. 

Financial markets have become more complex and institutions have a greater menu of assets in which to invest, but some of the basic challenges remain the same today.
Dr David Chambers, Reader in Finance, Cambridge Judge Business School and Academic Director, Newton Centre for Endowment Asset Management

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 per cent.

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

Unconventional investments: what we can learn from Keynes

A post on unconventional investments provides further insight on Keynes as a stock investor.

Read the post
Economics is a very dangerous science.
John Maynard Keynes

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 per cent 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. 

Read "If you're so smart: John Maynard Keynes and currency speculation in the interwar years" by Accominotti and Chambers via the SSRN website

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.

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