Keynes's trading on Wall Street: did he follow the same behaviour when investing for himself and for King's?

Abstract

In the last few years Keynes's investment activity, both as an individual trader and as a manager of institutions’ portfolios, has attracted attention in the specialised literature. Recently his investments on Wall Street, in particular – both on his own account (Cristiano, Marcuzzo and Sanfilippo 2018) and on behalf of King's College, Cambridge (Chambers and Kabiri 2016) – have been analysed, and the evident connection with his theoretical analysis of the functioning of the financial markets contained in chapter 12 of The General Theory has been duly stressed. This article aims to contribute to a more comprehensive understanding of Keynes's trading behaviour on Wall Street by providing a detailed comparison of his investment choices when he traded for himself and for King's. There are similarities, as might be expected, but also significant differences, well worth investigating. As far as the differences are concerned, one of the most striking is to be seen, for instance, in his attitude when, after a period of bull market in 1936, he had to face the spring 1937 burst of the speculative bubble and subsequent recession. Analysis of his behaviour in this specific case reveals that the event took him by surprise but his reaction differed with regard to his personal investments and the King's investments. The prevalence of a ‘buy and hold’ strategy, which, according to Chambers and Kabiri's reconstruction (2016), marked Keynes's behaviour in general (and also in this particular case) when he invested on behalf of King's, was not always his typical choice when the investments were undertaken on his own account. A tentative explanation of this result, which is also grounded on some different features characterising the two portfolios and not sufficiently investigated in previous studies, is at last provided in the article.

Why was Keynes keen to invest in American but not in British Investment Trusts?

“…The literature on Keynes's activity as an institutional investor has grown in the last decade (see Chambers and Dimson 2013;Accominotti and Chambers 2016;Chambers and Kabiri 2016) with the addition of further contributions on Keynes's personal investment by the present authors (see Cristiano, Marcuzzo and Sanfilippo 2018;Marcuzzo and Rosselli 2018;Marcuzzo and Sanfilippo 2016, [2020]2022, 2022Sanfilippo 2021), who have produced original data mainly from Keynes's archives. Both as a manager of institutions' portfolios and individual investor, his investment approach and performances in several markets, from the beginning of the 1920s until his death, have been analyzed and valuable information has been acquired, although more needs to be done to have a complete picture.…”

“…Until the early 1930s the size of Keynes's personal portfolio in sterling securities was considerably below £50,000 (except in 1924 and 1927), to reach a peak of more than £400,000 in 1936 and it remained quite large until his death (the value of his end-of-year portfolio in 1945 was about £330,000) (Marcuzzo and Sanfilippo [2020]2022). In Wall Street, where he started to regularly invest in 1932, the size of his dollar portfolio reached a peak in 1936, with $1,400,000 (almost £300,000 at the then current exchange rate), but it reduced to about $250,000 (something more than £60,000) in 1939 (Cristiano, Marcuzzo and Sanfilippo 2018) and to less than $130,000 (about £30,000) on average during the 1940s (Sanfilippo 2021).…”

“…These percentages for each year have been computed as market value holdings of the pet company shares (as defined above) in Keynes's end-of-year sterling securities portfolio 5. The value of his US holdings remained always below $190,000 during the 1940s, and below $65,000, in particular in the years 1941 and 1942(Sanfilippo 2021). 6 With the outbreak of the war restrictions on holdings of dollar denominated assets were enforced by the UK Treasury, in which Keynes was involved in his capacity as adviser.…”

Review of periodical literature for 2021

“…finds that interlocking directorships were equally common between weakly and strongly performing investment trusts. Sanfilippo draws a contrast between John Maynard Keynes's behaviour when investing on behalf of King's College, Cambridge, and his behaviour when investing in a personal capacity. Following a decline in the stock market in 1937, Keynes's approach for the (more diversified) portfolio of King's was very much ‘buy and hold’, unlike the approach for his own portfolio.…”