Berkshire Hathaway 1994 Annual Meeting Audience Question # 75

Best investment lessons Warren learned from John Maynard Keynes

Warren Buffett:

Zone 2?

Audience Member:

(This part of the audio is inaudible) from Houston, Texas. From time to time, you have quoted John Maynard Keynes, the British economist.

So, I would assume that you have read the investment writings very extensively. What are two or three investment lessons, in your opinion, one can learn from that economist?

Warren Buffett:

Well, I forget which, I think it’s chapter eight of “The General Theory,” do you remember Charlie? Or is it chapter…

Charlie Munger:


Warren Buffett:

There’s one chapter in “The General Theory” that relates to markets, and the psychology of markets, and the behavior of market participants and so on, that probably is, aside from Ben Graham’s two chapters, eight and 20, in “The Intelligent Investor”… I think
you’ll find you’ll get as much wisdom from reading that as anything written in investments. And you’ll know it when you see it in “The General Theory.”

It’s a chapter that jumps out to you about securities and so on. And I… could be chapter eight, but I may be wrong on that. But I would recommend reading that.

Keynes and Graham, from vastly different starting points, came to the same conclusion at about the same time in the ’30s, as to the soundest way to invest over time. They differed some on their ideas on diversification. Keynes believed in diversifying far less than did Graham.

But Keynes started off with the wrong theory, I would say, in the ’20s and essentially tried to predict business cycles in markets, and then shifted to fundamental analysis of businesses in the ’30s, and did extremely well.

And about the same time, Graham was writing his first material. I think Janet Lowe, in her book on Ben Graham, actually has a little correspondence that took place between Keynes and Ben.

So I would advise you to read that.

And there’s some letters of his that he… of Keynes’… that he wrote to co-trustees of life insurance societies, and colleges, and so on, that I think you’d find interesting, too.

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