Keynes initially failed by speculating on macroeconomic trends like currency fluctuations. He found success only after shifting his focus to the fundamental "micro realities" of individual businesses, such as their earnings power and management quality, realizing that a good business can thrive in any market environment.
A powerful exercise for investors is to find high-quality analysis and intentionally try to disagree with it. This process forces you to think critically, consult primary sources, and develop your own unique conclusions. Even if you end up agreeing, the mental work builds a more robust and differentiated investment thesis.
Keynes distinguished between speculation and enterprise (investing). A speculator tries to predict what other investors will think, while an enterprising investor forecasts a business's long-term earnings potential. Speculators focus on price, while investors focus on intrinsic value—a crucial distinction for avoiding costly errors.
Keynes compared professional investing to a newspaper beauty contest where the goal isn't to pick the prettiest face, but the one the average competitor will choose. This highlights how short-term markets are driven by guessing others' opinions, not by fundamental analysis—a game very few can win consistently.
Keynes successfully managed a concentrated fund for King's College but was pushed out of an insurance company for the same strategy. This demonstrates the institutional imperative to minimize tracking error, which pressures managers to conform to the index and "fail conventionally" rather than risk the short-term underperformance needed to succeed unconventionally.
Acknowledging he was susceptible to self-sabotage by trying to be overly clever, Keynes evolved a systematic process. By investing in fewer positions, holding them longer, and focusing on clear criteria, he deliberately reduced opportunities to act on his worst impulses, mirroring Buffett's "one-foot hurdle" approach.
Contrary to Keynes's early views, pursuing capital gains isn't inherently speculative. When a company reinvests all its profits at a high rate of return instead of paying dividends, the resulting share price increase is a direct reflection of compounding intrinsic value, not just changing market psychology.
Despite his genius-level intellect, Keynes went broke twice due to emotional flaws like overconfidence and impatience. This taught him that controlling one's urges and developing the right temperament is more crucial for long-term investing success than raw intelligence, a lesson learned through painful, real-world experience.
Analysis of Keynes's portfolio reveals a subtle skill: his true value-add came from ensuring his lowest-conviction ideas received minimal capital. Over his career, his bottom five positions shrank from 11.7% to just 6% of his portfolio, demonstrating a disciplined approach to managing risk on less-certain bets.