Universal Man: The Lives of John Maynard Keynes – Richard Davenport-Hines
Keynes's Way to Wealth: Timeless Investment Lessons from The Great Economist – John F. Wasik
John Maynard Keynes remains a fascinating person.
First, he’s constantly misapplied and misinterpreted—contrary to most neo-Keynesian thinking today, in my view he’d be staunchly opposed to a lot of today’s central banking measures, particularly massive quantitative easing and negative interest rates. One of the primary criteria for his demand-side policies was that after recessions, in times when the economy was again growing, extraordinary stimulative measures should be taken off the table. Particularly in the US, we’re years past hitting new all-time highs in GDP, yet interest rates still sit near zero. The world over, loose monetary policy continues in record quantity, too. I think he’d be grumpy about that.
Second, though I don’t agree with a good deal of his conclusions (I’ve always been more of a Hayek man), Keynes belongs in the pantheon of great economic philosophers—we see the world differently today because of his views. He effectively invented Macroeconomics, and his influence even a hundred years hence looms over everything. Love him or hate him, he’s an economic titan.
Third, what an interesting life he led! In Universal Man: The Lives of John Maynard Keynes, you get a sense of this. It’s about Keynes’ life outside his economic work, and reveals what I believe is a thread common to many great economists: He was a polymath and a lover of the liberal arts, whose round knowledge of a large number of topics played significantly into his economic insights. He understood Shakespeare about as well as interest rates. That’s far against today’s archetype of the stiff-collared statistician as economist—the hyper-rationalist. Keynes was a tremendous and eloquent rhetorician—a great writer and deft on the political scene. For all his arcane theoretical work, one could argue The Economic Consequences of the Peace, his argument about how to treat Germany after World War I and, at the time a bestseller, was his most influential. All this resulted in an intuitive, insightful, holistic, humanistic kind of knowledge: the intersection of experience and conceptual intelligence. He was among the last of the great tradition of economists as philosophers. In Universal Man, you not only get a portrait of Keynes’ life, you also get a survey of prevailing intellectual life in his time—pre- and post-Depression, and especially in how nations dealt economically with both world wars (in which Keynes played important roles in setting policy).
And, fourth...Keynes was, uh, a great investor? Well, sort of.
John Wasik’s Keynes’s Way to Wealth analyzes his investing career and comes to the conclusion he was more or less the father of everything from diversification, to benchmarking, to value investing. In this way, it’s kind of a celebrity chef or celebrity fitness concept. Emulate the best! There are scads of books out there trying to teach the investing methods of singular individuals to the wider public. It rarely works. You can’t just “become” Keynes any more than you can become Warren Buffett after reading a few books.
And on this note, extreme caution is advised. Yes, there are some good lessons to glean from Keynes’ investing career. But let’s remember, this guy made and lost fortunes twice! Volatility of his portfolios was all over the place. And, particularly in the front half of his career, he was overwhelmingly positioned in highly speculative stuff like currencies and commodities. For Keynes, investing wasn’t just about wealth, it was a bit of an intellectual game, a kind of avocation or lark, part of how he learned. He took the market’s puzzles seriously, but also as a lab to test his intuitions and ideas. A lot of his approach would be dangerous for today’s average investor. Why? Average investors don't have the acumen Keynes had, nor the risk tolerance, nor the relative access to information. And the stuff summarized as lessons in this book were never systematized by Keynes. Again, much like his economics, there is an intuitive aspect here that can’t be forgotten.
What’s interesting about the book is Keynes’ evolution as an investor, and that’s where the real lessons lie. Over the long run, Keynes came to believe in stocks as the best asset for investors to grow their wealth. (Incidentally, in Kenyes’ time, bonds and real estate were all the rage, not so different from today.) And importantly, he learned to ignore short-term noise and stick to the stated portfolio goals. Keynes was among the first to describe the market’s “animal spirits,” alluding to the idea that markets are not fully efficient and, yes, can be irrational at times, subject to manias and panics. Also of note, toward the end of his life he viewed his own economic theories as not useful for successful investing.
All of this makes Wasik’s book useful and interesting as a historical document—and even functions as a decent short biography to Keynes’ professional life. But like so many guru emulation guides, proceed with caution. Study the man, but don’t try to be him.