Chapter 12 of The General Theory of Employment, Interest and Money is more about psychology and sentiment than number crunching models.
Our knowledge of the factors which will govern the yield of an investment some years hence is usually slight and often negligible.
If human nature felt no temptation to take a chance, no satisfaction in constructing a factory, a railway, a mine or a farm, there might not be much investment merely as a result of cold calculation.
The daily revaluations of the Stock Exchange, though they are primarily made to facilitate transfers of old investments between one individual and another, inevitably exact a decisive influence on the rate of current investment.
For there is no sense in building up a new enterprise at a cost greater than that which a similar enterprise can be purchased; whilst there is an inducement to spend on a project what may seem like an extravagant sum, if it can be floated off on the stock exchange at an immediate profit (tobin's Q).
Conventional valuation is established by the mass psychology of a large number of ignorant individuals...the market will be subject to waves of optimistic and pessimistic sentiment.
The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelope our future.
The private object of the most skilled investor is to beat the gun...to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.
A game of Old Maid, of Musical Chairs - a pastime in which he is victor who passes the Old Maid to his neighbor before the game is over, who secures a chair for himself before the music stops.
Showing posts with label Keynes. Show all posts
Showing posts with label Keynes. Show all posts
Friday, October 4, 2013
More Keynesianisms
The central principle of investment is to go contrary to the general opinion, on the grounds that if everyone agreed about its merit, then investment is inevitably too dear and therefore unattractive.
"It is the duty of serious investors to accept depreciation of their holdings...an investor should be aiming primarily at long period results and judged solely on these."
I am clear that the idea of wholesale shifts if for various reasons (impractical) and indeed undesirable. Most of those who attempt it sell too late and buy too late, and do both too often, incurring heavy expenses and developing too unsettled and speculative a state of mind.
A careful selection of a few investments...having regard to their cheapness in relation to their probably actual and potential intrinsic value over a period of years ahead and in relation to alternative investments at the time.
His portfolios were idiosyncratic and approach unconventional. He went into equities as an asset class before that became de rigeur. He changed course from top down macro trading to bottom up long term investing.
Principles:
Focus on estimating intrinsic value of a stock - rather than attempt to divine market trends.
Ensure that a sufficiently large margin of safety exists before purchase.
Apply independent judgment in valuing stocks - often a contrarian view.
"It is the duty of serious investors to accept depreciation of their holdings...an investor should be aiming primarily at long period results and judged solely on these."
I am clear that the idea of wholesale shifts if for various reasons (impractical) and indeed undesirable. Most of those who attempt it sell too late and buy too late, and do both too often, incurring heavy expenses and developing too unsettled and speculative a state of mind.
A careful selection of a few investments...having regard to their cheapness in relation to their probably actual and potential intrinsic value over a period of years ahead and in relation to alternative investments at the time.
His portfolios were idiosyncratic and approach unconventional. He went into equities as an asset class before that became de rigeur. He changed course from top down macro trading to bottom up long term investing.
Principles:
Focus on estimating intrinsic value of a stock - rather than attempt to divine market trends.
Ensure that a sufficiently large margin of safety exists before purchase.
Apply independent judgment in valuing stocks - often a contrarian view.
Thursday, October 3, 2013
More Keynesianisms
Apparently he was a macro player in the 20s (and wasn't very good) but devolved toward a concentrated, bottoms-up stock picker who focused on quality companies in the emerging technologies of the day (autos, electricity) by the 30s (I guess if you got in at the bottom you would look a genius). He was a long term holder. Interestingly his market timing skills were no good (who's are) and he exhibited a lot of regret in his trading (selling winners and holding losers).
"it may often profit the wisest (stock market player) to anticipate mob psychology rather than the real trend of events, and to ape unreason in anticipation...Thus, so long as the crowd can be relied on to act in a certain way, even if it be misguided, it will be to the advantage of the better informed professional to act in the same way - a short period ahead."
"The machine has merely been jammed as a result of the muddle." He did not see the world as euclidean (linear) but he certainly subscribed to cause and effect. He saw the economy as a machine that just needed its confidence up to keep going.
He saw the depression a result of under-investment and over-savings rooted in the psychology of fear/uncertainty. The solution was for the government to pick up the spending slack in order to revive confidence.
"As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprise which one thinks one knows something about and in the management of which one thoroughly believes."
"it may often profit the wisest (stock market player) to anticipate mob psychology rather than the real trend of events, and to ape unreason in anticipation...Thus, so long as the crowd can be relied on to act in a certain way, even if it be misguided, it will be to the advantage of the better informed professional to act in the same way - a short period ahead."
"The machine has merely been jammed as a result of the muddle." He did not see the world as euclidean (linear) but he certainly subscribed to cause and effect. He saw the economy as a machine that just needed its confidence up to keep going.
He saw the depression a result of under-investment and over-savings rooted in the psychology of fear/uncertainty. The solution was for the government to pick up the spending slack in order to revive confidence.
"As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprise which one thinks one knows something about and in the management of which one thoroughly believes."
Some Keynesianisms
Went to a presentation today on the life and philosophies of JM Keynes. Interesting fellow. I got the impression he was very independent and contrarian. I guess you have to be if you are going to reinvent the way we see something. In any case, he had a hybrid view on human nature. On the one hand he didn't think much about it (our instincts) and looked down upon the commoners. On the other hand he originated a great insight to human confidence and the need to keep it up, and how devastating it was when it eroded. I think he saw confidence as a facade, but a very important one to maintain.
He made his name with the incredibly insightful "The Economic Consequences of Peace," in in which he foresaw the negative implications of the Treaty of Versaille.
He hung with The Apostles at Cambridge and the Bloomsbury group in London.
After cavorting around as a gay man, he became smitten with and married a Russian ballerina.
He made his name with the incredibly insightful "The Economic Consequences of Peace," in in which he foresaw the negative implications of the Treaty of Versaille.
He hung with The Apostles at Cambridge and the Bloomsbury group in London.
After cavorting around as a gay man, he became smitten with and married a Russian ballerina.
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