What made Keynes a good investor?
- Little luck with "macro" style strategy early in his career
- Switched to "bottom-up" stock picker
- Focused on small and mid size businesses he believed were undervalued
- Concentrated assets in small number of holdings (i.e. not diversified in traditional sense)
- Extremely long holding period for typical security purchased (>5 yrs)
- Limited partners provided him considerable leeway to invest as he wished
Implications for investors today?
- Think twice before selling a security you have owned for a short time (<1-2 yrs)
- Focus effort on evaluation of small and midsize businesses (multiple reasons for this beyond simply that Keynes did it)
- Invest with money managers who: (1) have freedom of action (2) high tracking error vs indexes (3) turn over securities relatively infrequently (avg for institutional investors is 15 months)
- Examples of "good" managers based on above characteristics: (1) Fairholme (2) FPA (3) Longleaf (4) Yacktman
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