Would Keynes Have Been Fired as a Money Manager Today?

Interesting post by Ben Carlson.

Keynes managed an average return of 13.2% in the period 1928-45. The markets gave a return of -0.5% in the same period. This was an exceptional performance albeit came with much higher volatility. So would he have been fired for this performance?

 

Keynes was a fundamental, focused investor, similar to Warren Buffett in that he practiced buy and hold in a select group of stock holdings. It’s also interesting to note that even with a small number of holdings he still tried to diversify his risks.

Now back to the question of whether or not Keynes would have been fired by investors today if he showed similar performance, volatility and drawdown numbers. Unfortunately, I agree with the responses from Twitter in this instance, which is a shame. This is a legendary investment record during one of the most difficult periods in history to be an investor.

But short-termism and status quo are so widely practiced in the institutionalized world of investing that it’s highly unlikely that investors would have the requisite patience to stick with someone like Keynes today. Investors would certainly chase performance after the string of good years, but very few would be able to earn the overall outperformance figures.

For most investors the goal shouldn’t necessarily be to beat the market, but to not beat themselves. And then there’s the question of actually discovering the next John Maynard Keynes. But putting all of that aside for the moment — there is an unbelievable amount of time, effort and money spent on the singular goal of beating the market. It’s the entire reason many fund managers exist. Yet the conundrum is that there are very few investors out there with the correct level of patience or discipline to see through the type of strategy that’s required to actually beat the market by a wide margin.

In a recent Think Advisor piece, Yale’s David Swensen summed this up nicely:

Active management strategies demand uninstitutional behavior from institutions, creating a paradox that few can unravel. Establishing and maintaining an unconventional investment profile requires acceptance of uncomfortably idiosyncratic portfolios, which frequently appear downright imprudent in the eyes of conventional wisdom. The most attractive investment opportunities fail to provide returns in a steady, predictable fashion.

This description fits Keynes’s investment principles perfectly. And because he ran an idiosyncratic portfolio, it’s highly likely Keynes would be fired by professional investors in today’s day and age.

🙂

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One Response to “Would Keynes Have Been Fired as a Money Manager Today?”

  1. Dinesh Says:

    A naïve question perhaps:
    During the period referred here, policy makers followed Keynes and pumped money in the sectors suggested by him.
    In juxtaposition with exceptional returns, isn’t it a case of insider trading?

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