STREET DOGS

In a letter to a business associate in 1934, John Maynard Keynes showed how, in addition to favouring long-term investments he liked to limit these to a small number of enterprises. “As time goes on,” he wrote, “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.

“It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence…. One’s knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.”

Increasingly, Keynes grew to favour a contrarian style of investing, writing in 1937: “It is the one sphere of life and activity where victory, security and success is always to the minority and never to the majority. When you find anyone agreeing with you, change your mind.”

In 1938, Keynes wrote his manifesto for sound investing and proposed: (1) “A careful selection of a few investments (or a few types of investment) having regard to their cheapness in relation to their probable actual and potential intrinsic value over a period of years ahead and in relation to alternative investments at the time;” (2) “A steadfast holding of these in fairly large units through thick and thin, perhaps for several years, until either they have fulfilled their promise or it is evident that they were purchased on a mistake;” and (3) “A balanced investment position, (ie) a variety of risks and, if possible, opposed risks.”

In short, a strategy that today is remarkably similar to that of Warren Buffett.