Keynesian Investing: Changing Facts, Changing Minds

Changing His Mind

David Chambers and Elroy Dimson have published a wonderful paper on Keynes the Stock Market Investor, which analyses John Maynard Keynes’ remarkable investment record as the effective Chief Investment Officer of Kings College Cambridge over a period of a quarter of a century.  It’s a fascinating insight into the evolution of one individual from underperforming, overconfident, macro-based and behaviorally biased to an outperforming, realistic, stockpicking rationalist. 

That this journey happens to have been made by one the last century’s most famous economists, and that it flies in the face of much of his own macroeconomic theory merely adds piquancy.  The lessons, though, are applicable for any investor, whether genius or not.

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The Unintelligent Investor

Be Smart, Play Dumb

Most of the people who provide advice on stocks are either wrong or simply practising their sharpshooting, painting targets around their bullet holes. This means that the few people who actually know what they’re talking about and have proven track records form the small subset of humanity from which we might actually hope to learn a few lessons.

Unfortunately even the real gurus tend to have a less than one hundred percent record when it comes to not getting things catastrophically wrong. For all that they profess to follow the strictures of Ben Graham’s classical tome, The Intelligent Investor, all too often it seems that random happenstance of everyday life defeats the planned smartness of the human being. Operating as though we’re unintelligent is the best bet for most of us, because that’s exactly what we are.

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A Keynesian Theory of Mind

The Mental Cell of Autism

Autism is one the crueller tricks that nature plays on human beings, leaving sufferers isolated, incapable of making social connections and effectively trapped within their own heads. Although the causes aren’t fully understood some of the consequences are, and chief among these is the inability of sufferers to take on the perspective of others. This failure to develop a so-called theory of mind means they simply can’t understand the needs and motivations of other people.

According to John Maynard Keynes a proper theory of mind is just what an investor needs to keep one step ahead of the crowd, although others feel that Keynes’ approach to investing is tantamount to chasing returns all the way to poverty. It raises the question, though, as to how much a person’s genetic makeup determines the type of investor they are. Are effective value investors really just socially inept wallflowers or simply extremely focused individuals?

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