Sunday, December 23, 2007

Holiday reading

If you are looking for some excellent holiday reading this Christmas can I give you a suggestion, get your hands on "The Keynes Mutiny" by Justin Walsh. This has been one of the best books I have read this year.

It is the story of John Maynard Keynes. Keynes contributions to the field of economics are well known, however, what is less well known is that Keynes had a phenomenal investment record both as custodian of the Kings College Funds and as Chairman of National Mutual Life Assurance. He really was the "Warren Buffett" of his day and this book is packed full of pearls of his own investment wisdom.

Keynes always invested with a margin of safety. In one letter to a colleague, Keynes wrote" My purpose is to buy securities where I am satisfied as to assets and ultimate earning power and where the market price seems cheap in relation to these. If I succeed in this, I shall simultaneously have achieved safety-first and capital profits"(p134 The Keynes Mutiny).

He believed in a concentrated portfolio and saw the problems of diversifying too heavily..."to carry one's eggs in a great number of baskets,without having time or opportunity to discover how many have holes in the bottom, is the surest way to increasing risk or loss"(p184 The Keynes Mutiny)

In Chapter 10 "Leaning into the Wind" , Walsh describes how Keynes knew that the time to buy was at the "the sound of canons" ,literally. In 1918 the Germans forces launched a final offensive against France. Arriving on the outskirts of Paris, they began to unleash their new destructive weapon, "the Big Bertha" canons. The citizens in the French capital were terrified & many fled. In this moment of panic with the threat of a German occupation of Paris, John Keynes, on behalf of the British Treasury, seized the opportunity to acquire numerous priceless works of art by Gauguin, Manet & Delacroix from the National Gallery in Paris for knock-down prices.

On a final note, I think one of the most powerful messages to come out of my reading of John Keynes life and his ideas is that great investors are great thinkers. They are philosophers, historians and in the same vain businessmen and investors. Warren Buffett often says he is a keen reader of financial history. Keynes was a journalist, University Professor and economic advisor before he became a successful investor. I believe that Keynes was able to draw on all of these influences and experiences in developing his own powerful philosophy of value investing.

Merry Christmas and Happy New Years

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