By John F. Wasik, author of Keynes Way to Wealth: Timeless Investment Lessons from the Great Economist
NEW YORK (TheStreet) -- How do you avoid buying at the height of a market or bailing when a stock -- or an entire portfolio -- gets burned? How do you keep the faith when there's trouble at nearly every turn, as was the case in 2008?
I found the answers to these perplexing questions in an unusual place: the portfolios of the great economist John Maynard Keynes. The investment strategies of Keynes showed me some fundamental higher truths. Little did I know that I would find a wealth of investment wisdom in the writings and trades of Keynes, who is far better known for his economic theories.
I actually found solace when I examined Keynes's investment record, which spans two world wars and the Great Depression. Even though I, and millions of others, have weathered brutal markets, we had nothing on Keynes, who was investing money for King's College (Cambridge University), two insurance companies and private accounts for himself and his famous Bloomsbury friends.
The great economist not only prospered, he did so during one of the worst times in history to invest, along the way pioneering what would later become known as value investing and behavioral economics.
When exploring Keynes's investment success, you have to throw out the notion that he hated markets or was a socialist. Keynes was a rabid speculator and active trader. He loved markets. Although he was a harsh critic of capitalism, he kept investing -- and was eventually rewarded. His experience provides solid grounding for stock investors everywhere.
In researching and writing Keynes's Way to Wealth, thanks to gracious access granted to me by the King's College archives at Cambridge University, I was able to piece together a mostly unknown side of Keynes that most Keynesian economists -- and financial professionals -- have never seen.
Keynes the Stellar Investor
Unlike many investors who buy high and sell low, Keynes learned from his mistakes and three separate events that triggered near financial ruin. He was able to move on, reach new conclusions about how to regard market movements and earn a place in the pantheon of great investors that includes Benjamin Graham, Warren Buffett and George Soros.
In addition to eventually crafting ideas and institutions that would rescue Western economies (and Japan) after two devastating cataclysms, he managed money for his own portfolio, his Bloomsbury friends and several institutions. Keynes was most likely one of the first hedge fund managers and established some time-honored principles that the best investors follow today.
Keynes's performance under fire during the 1930s and World War II (his street in London was bombed), inspired several generations of investors that followed. His dogged pursuit of value stocks, dividends, cash flow and future earnings established him as a durable "buy and hold" investor who was confident he would be rewarded in the long run.
After his death, the vindication of Keynes' portfolios proved that he deserved to be emulated. Although his estate was worth at least $22 million (in 2013 dollars) when he died, his contribution to the arts, modern economics and a more stable global economic climate is incalculable.
As an investor, he championed the merit of examining the "earning power" of stocks, looking deep into a business's ability to survive in a variety of economic conditions and the abandonment of market timing and speculation.
The larger message from Keynes's investment style is that if he saw value in a company, he ignored the short-term "noise" of the market and held onto a company he saw as a worthwhile enterprise. He was always looking ahead and didn't particularly like selling a stock. And if a stock paid dividends, that was icing on the cake.
Today, when retirement investors are starved for yield, finding dividend-paying stocks that raise their quarterly payments on a regular basis, makes eminent sense. You can actually build a growth-and-income portfolio around them.
Even more significant is his recognition of "animal spirits" and the role that mass psychology plays in investing and markets. In doing so, he tackled one of the most elusive -- and powerful -- elements of markets, behavior that modern economists have still yet to fully understand, much less predict.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
John F. Wasik is the award-winning author of 14 books, a speaker, journalist and blogger. He writes a weekly investment column for
, the world's largest news service, and contributes to
The New York Times
and other publications. He lives in Grayslake, Ill., and has spoken to investment club conferences across the country.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.