Lessons on Investing From Economics Giant John Maynard Keynes

I was never a keen student of economics while in school, but the name John Maynard Keynes was frequently heard. In fact, Keynes is likely to be one of the most important economists in history. His brand of economics has been termed as Keynesian economics and has greatly influenced the economic policy of many nations, chief amongst those, the United States of America.

While there are ardent supporters on both sides of the equation on how effective Keynesian economics really is in trying to solve economic conundrums around the world, there is another side to Keynes that we, as investors in the stock market, could learn from.

According to research done by David Chambers and Elroy Dimson, who had both co-written a study called John Maynard Keynes, Investment Innovator, Keynes had managed to beat the British stock market by some 8 percentage points a year on average from 1921 to 1946 when he managed the endowment fund of King’s College at Cambridge University.

Considering that the British stock market gained 8.28% a year during that period after factoring in the effects of inflation, Keynes’ returns are no mean feat. But, how did he go about doing it? Interestingly, Keynes wasn’t a market timer. Or at least, he wasn’t one during his most successful years.

For the most of the 1920s, Chambers and Dimson described Keynes’ investment approach as “using monetary and economic indicators to market-time his switching between equities, fixed income, and cash.” But, the approach wasn’t successful – by Aug 1929, Keynes had fallen short of the UK stock market by a cumulative 17.2% since 1921 – and from the 1930s onward, Keynes started to focus on buying good quality shares with high dividend yields and then holding them for the long-term.

This is how Keynes described his new approach: “As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.” This new business-focused approach to investing worked and helped deliver great returns eventually.

In Chambers and Dimson’s paper, they went on to reveal that Keynes was a firm believer in how a share would carry an “intrinsic value” that could be divined from its financials and economic fundamentals. And, Keynes would strive to purchase shares whose market prices were below his estimate of this intrinsic value.

For me, Keynes’ experience while managing money professionally for King’s College once again drove home the point regarding how well a business-centric approach to investing can work over other approaches. Instead of depending on arcane signals to determine the best times to buy and sell different financial assets over the short-term, Keynes’ performance improved tremendously after he adopted a long-term view and started looking at stocks as a business.

With investing, it really isn’t about timing the market, but rather, it’s about the clever purchase of good businesses selling at bargain prices and letting ourselves stay for a long time in the market.

Can we replicate Keynes’ investment approach now though? This is by no means any recommendations of any sort, but the following shares carry dividend yields that are either in-line or higher than that of the market average and have been showing consistent growth in profits over the years (which could be a signal of quality): Vicom (SGX: V01), ARA Asset Management (SGX: D1R), Jardine Cycle & Carriage (SGX: C07), and Riverstone Holdings (SGX: AP4).



Trailing dividend yield




ARA Asset Management



Jardine Cycle & Carriage



Riverstone Holdings



Straits Times Index



Source: S&P Capital IQ; SPDR Straits Times Index ETF website

Source: S&P Capital IQ

Can those four shares above, with their healthy yields and strong earnings growth, really beat the market going forward? No one can really say for sure. But one thing is certain: These shares have rewarded their long-term investors with great multi-bagger returns that were driven by their corporate performance.


Total Return since start of 2003*



ARA Asset Management


Jardine Cycle & Carriage


Riverstone Holdings


*Total returns include gains from reinvested dividends. Total returns for ARA and Riverstone are calculated since the start of 2008 and 2007 respectively since those two shares were listed on Nov 2007 and Nov 2006.

Source: S&P Capital IQ

If anything, the history of those four shares lend further credence to Keynes’ experience with how long-term investing in solid businesses can indeed generate great returns.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.