Value Investing

Keynes -Try, fail, analyze, adjust, and try again

Although he’s better known for his sweeping and controversial economic theories, John Maynard Keynes was a fervent practitioner of capitalism. His incredible success as an investor shows how he embraced markets nearly all of his life. This article is based on quotes, research, and data from Superforcasting

Key Description: Keynes learned from his mistakes and near financial ruin. Before World War I, Keynes was mostly not restrained in the stock market. “It’s at the end of the 20th century’s first decade that we see Keynes’ growing interest in markets, investing and speculation.”

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Having lost the bulk of two fortunes, Keynes re-oriented his thinking about trying to predict market movements. As he began to step outside the bounds of classical economics, he was doubtless influenced by his investment failures. Instead of trying to anticipate the market, Keynes now focused on the enterprise, or intrinsic, a value of what stocks were worth. More importantly, the results from this tumultuous period show Keynes’ resilience and willingness to adapt to changing markets.

The authors (Philip Tetlock and Dan Gardner) nicely summed up the Keynes’s findings. When he was blindsided by the crash of 1929, he subjected his thinking to withering scrutiny. Keynes concluded that there was something wrong with one of his key theoretical assumptions. Stock prices do not always reflect the true value of companies, so an investor should study a company thoroughly and really understand its business, capital, and management when deciding whether it had sufficient underlying value to make an investment for the long term worthwhile. In the United States, about the same time, this approach was developed by Benjamin Graham, who called it “value investing.” It became the cornerstone of Warren Buffett’s fortune.

Conclusion: He was able to move on, reach new conclusions about how to regard market movements. From the book “Superforcasting: the Art and Science of Prediction”, it is revealed that Failure did not mean he had reached the limits of his ability. It meant he had to think hard and give it another go. Try, fail, analyze, adjust, and try again: Keynes cycled through those steps ceaselessly and it is fundamental to how all of us learn since we born.

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