Why Keynes Said Investing Requires a "Gambling Instinct"
The game of professional investment is intolerably boring and overexacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll.
— John Maynard Keynes
John Maynard Keynes is best known for helping create the post-war monetary system that lifted a billion people out of extreme poverty. He was also a successful investor who built up a personal fortune.
In this quote, he refers to his belief that few professional investors allocate capital according to expected long-term returns. Instead, he believed most professional investors were just trying to outwit the crowd.
Keynes likened investing to the challenge of picking the most beautiful faces from hundreds of photos. But rather than choosing the faces that you yourself find beautiful, investors try to determine which faces will be considered the most attractive, on average, by all the other competitors.
"We have reached the third degree, where we devote our intelligences to anticipating what average opinion expects the average opinion to be."
— John Maynard Keynes
To learn what Keynesian insights you can apply to your portfolio, read the enjoyable and elegant Investing with Keynes: How the World's Greatest Economist Overturned Conventional Wisdom and Made a Fortune on the Stock Market, by Justyn Walsh.
Of Keynes' own works, I suggest starting with his General Theory of Employment, Interest, and Money. Paul Krugman calls it "nothing less than an epic journey out of intellectual darkness" and "a book for the ages." He says, "Read it, and marvel."
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