Zweig: Buy in a Market Bust like John Maynard Keynes

Anyone who has studied economics will be more than familiar with the name John Maynard Keynes. In last week’s Wall Street Journal, Jason Zweig reports that new research is offering information about how the investment success of this great economist “should teach all investors the importance of preparation, courage and patience.”

Before his death in 1946, Keynes wrote several books that, according to Zweig, “revolutionized economic policy and helped devise the modern global monetary system.” The research explains how he also “mustered the courage to invest heavily in U.S. stocks” during the Great Depression while traveling to the U.S. to research the workings of Wall Street, business and government.

And his intestinal fortitude had staying power. When stocks fell another 38.6% in 1937,” Zweig reports, “Keynes, undaunted, bought still more.” By 1939, he had invested half of the portfolio he managed for King’s College (in the University of Cambridge) in U.S. companies. And he seemed to have the right idea. From 1922 through 1946 (the year of his death), his portfolio outperformed the U.K. stock market by an average of nearly six percentage points annually—”a period that covered the worst market crash, the worst economic depression and the worst war in modern history.”

Zweig says that Keynes, like his American contemporary Benjamin Graham, understood that “barging into bear markets to buy” is a better course than trying to sidestep them.

“Unless you’re in or near retirement,” Zweig argues, “steel your courage. Write a binding contract with yourself, witnessed by a friend or family member, committing you to buy more stocks when they fall 25%, 50% or more. Years from now, you’ll be glad you did.”