Keynes points the way back to the future, says Karl-Heinz Thielmann of Long-Term Investing Research

Karl-Heinz Thielmann, at Long-Term Investing Research AG (Institut für die langfristige Kapitalanlage), says today’s fund managers could learn from the experiences of economist John Meynard Keynes during the 1920s, 1930s and 1940s.

John Maynard Keynes (1883-1946) is still one of the best-known economists of all times. His analysis of the worldwide economic crisis in the 1930s laid the foundations of modern macroeconomic theory and influenced a whole generation of economists. Policy recommendations derived from his theory influenced the monetary and fiscal policies of the economically most significant nations for decades. In addition, he developed basic insights into how economic decisions can sometimes become irrational. The concept of “animal spirits”, which has become popular in recent years, is due to him. In addition, he developed basic ideas about how uncertainty and non-knowledge affect economic behaviour.

Indeed, his views on the business cycle and how to control it were and are still seen as very controversial. The fact that his theory mainly concentrated on the effects of demand and neglected incentives on the supply side caused a radical turning away from Keynes, particularly in the 1980s. However, in the meantime, there has been a renaissance of his thoughts, in particular due to the 2008 financial crisis and its consequences. His considerations about uncertainty play a particularly big role in many recent research projects.

His role as fund manager and his significance for the investment world are less known, but relatively undisputed. His importance is based not only on the fact that he was one of the pioneers in the 1920s and 1930s who introduced shares as an acceptable investment form for institutional investors. Furthermore, he also developed an investment style which decisively influenced very different investors such as Warren Buffet, George Soros or David Swensen in later years. Above all, however, the outstanding performance of his investments was responsible for his fame. During difficult years of depression and war he was able to achieve positive returns with share investments and considerably outperform the whole equity market.

There are varied statements about the magnitude of his outperformance. The most common is that Keynes succeeded in beating the British stock market by approximately 11% p.a.. However, more recent calculations indicate that this number is based on comparisons with unrepresentative indexes, which do not include dividends. It is more realistic to assume an above-average performance of approximately 5.4% annually. But even this number is so outstanding that Keynes can rightfully be considered one of the greatest investors of all times.

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