Keynes: Sometimes hoarding is the most rational thing
The inducement to invest depends on expectations of profit. But these expectations are highly uncertain. Faced with irreducible uncertainty, hoarding is more rational than investing.
– John Maynard Keynes
Today's Oracle Bio:
With apologies to all the academics out there, John Maynard Keynes wasn't just a professor. During the Great Depression, he managed to build up a personal fortune of about $30 million though stock investing. He also outperformed the British common stock index by an annual average of 8 percentage points while managing the King's College endowment fund at Cambridge University from 1921 to 1946.
That record nearly matches Warren Buffett's performance against the S&P 500. (Buffett beat the index by 9.6 percentage points between 1965 and 2024.)
When he wasn't investing, Keynes helped create the post-World War II international economic system and made his theories the dominant strain of postwar economics in the West.
Book Highlight:
To learn what Keynesian insights you can apply to your portfolio, read Investing with Keynes: How the World's Greatest Economist Overturned Conventional Wisdom and Made a Fortune on the Stock Market, by Justyn Walsh.
Thought of the Day:
Would you build a house on shifting sand, or hold onto your bricks and lumber until the foundation is stable?
Keynes's quote is meaningful today. The heightened uncertainty caused by the current U.S. administration raises the risk of investing. Why not hoard cash as a safer and more rational option? It both avoids loss and gives you flexibility to strike if an opportunity arises.
In my portfolio, I have increased my cash holdings significantly by selling the equities to which I was least committed. But, because selling more shares would cost me too much in capital gains taxes, cash still makes up less than 10% of my holdings.
Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Please consult with a qualified financial advisor before making any investment decisions.
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