As one who’s worked with financial advisors for years as a journalist, I can empathize with their frustration in dealing with clients.

How do you get them to avoid buying at the height of a market or bailing when a stock—or an entire portfolio—gets burned? How do you keep the faith when there’s trouble at nearly every turn, as was the case in 2008?

I found the answers to these perplexing questions in an unusual place: the portfolios of the great economist John Maynard Keynes. The investment strategies of Keynes showed me some fundamental higher truths. Little did I know that I would find a wealth of investment wisdom in the writings and trades of Keynes, who is far better known for his economic theories.

I actually found solace when I examined Keynes’s investment record, which spans two world wars and the Great Depression. Even though I, and millions of others, have weathered brutal markets, we had nothing on Keynes, who was investing money for King’s College (Cambridge University), two insurance companies and private accounts for himself and his famous Bloomsbury friends.

The great economist not only prospered, he did so during one of the worst times in history to invest, along the way pioneering what would later become known as value investing and behavioral economics.  

When exploring Keynes’s investment success, you have to throw out the notion that he hated markets or was a socialist. Keynes was a rabid speculator and active trader. He loved markets. Although he was a harsh critic of capitalism, he kept investing—and was eventually rewarded. His experience provides solid grounding for stock investors everywhere. 

In researching and writing Keynes’s Way to Wealth, thanks to gracious access granted to me by the King’s College archives at Cambridge University, I was able to piece together a mostly unknown side of Keynes that most Keynesian economists—and financial professionals—have never seen.

Keynes The Stellar Investor
Unlike many investors who buy high and sell low, Keynes learned from his mistakes and three separate events that triggered near financial ruin. He was able to move on, reach new conclusions about how to regard market movements and earn a place in the pantheon of great investors that include Benjamin Graham, Warren Buffett and George Soros.

In addition to eventually crafting ideas and institutions that would rescue Western economies (and Japan) after two devastating cataclysms, he managed money for his own portfolio, his Bloomsbury friends and several institutions. Keynes was most likely one of the first hedge fund managers and established some time-honored principles that the best investors follow today.

It was only after going through thousands of brokerage account statements, ledgers, shareholder letters and portfolio summaries that Keynes’s investment personality emerged. The narrative starts with a brilliant Cambridge lecturer who is starting to make his way in academia after an unsatisfactory post in the India Office prior to World War I.

Early Investments 
It’s at the end of the 20th century’s first decade that we see Keynes’s growing interest in markets, investing and speculation. In his lecture notes, we see a curious Keynes who has, up until that point, little direct engagement in investing, but a yearning to explore. His lecture on the stock market, in the Lenten term of 1910, calls it “essentially a practical subject, which cannot properly be taught by book or lecture.”

According to economist professor Victoria Chick, Keynes “loved gambling and was always one to get involved in a card game.” But it was a penchant for market speculation and his friendship with stockbroker Oswald Falk that propelled Keynes to explore the markets just before World War I. When I asked his biographer, Lord Skidelsky, when he first saw evidence of Keynes’s serious interest in investing, he surmised it was before 1910, when “like [George] Soros, I think he used the financial markets to test his theory of probability.” Keynes had begun work on a book on probability—later published in 1921 as A Treatise on Probability—prior to the war.

Before World War I, Keynes was mostly inexperienced in the stock market. Since he didn’t have inherited wealth—and lecturing at Cambridge didn’t pay much at the time—he was dependent upon allowances from his father (a Cambridge don and administrator), his mentor economist Alfred Marshall and tutoring fees. Although he managed to accumulate money from birthdays and academic prizes in a “special fund” started in 1905, he didn’t really start investing in earnest until 1914, according to Donald Moggridge, author of the book Maynard Keynes: An Economist’s Biography.

Using his knowledge of international finance, Keynes took to the currency markets with abandon. Floating currencies, which had been fixed before 1914, were notoriously volatile at the time, but Keynes thought he had the advantage of “superior knowledge.” Believing that postwar inflation would hurt the values of the French franc, German reichsmark and Italian lira (which all existed until the time of the euro zone integration), Keynes shorted those currencies. This transaction made money if the currencies dropped in value relative to other, stronger currencies such as the British pound or U.S. dollar. He went long on the Indian rupee, on Norwegian and Danish kroner and on the dollar.

“He wanted to make money in a hurry in the 1920s,” Skidelsky told me, “and thought gambling on currencies (when currencies were floating in the early 1920s) was the way to do it.”

Along with Falk, his brother Geoffrey and Bloomsbury friends, Keynes set up an investing syndicate in 1920, which many financial historians claim was one of the first hedge funds. Rather than manage money for preservation of capital or yield, Keynes was speculating pure and simple. At first, his strategy paid off, netting $30,000 for his investors in the first few months. By April 1920, notes Liaquat Ahamed in Lords of Finance, Keynes made an additional $80,000, which was astounding considering that most of Europe was essentially broke from the war. Then something unexpected happened: “Suddenly, in the space of four weeks, a spasm of optimism about Germany drove the declining European currencies back up, wiping out their entire capital.”

Embarrassed, though willing to get back on the speculation horse to make up the losses he suffered for his friends and family, Keynes reinvested in currencies following his 1920 shellacking. It also helped that he was staked by his father and wealthy investors, who had unwavering confidence in Keynes.

The Roaring Twenties
As a trader who believed that he could profit from the impact of supply and demand curves, Keynes became enraptured with the idea of commodities trading in the 1920s. Europe clearly needed every kind of commodity to rebuild after the Great War. Prices generally followed the demand. There were opportunities for astute speculators and Keynes started researching and writing about commodities in the early 1920s for the London and Cambridge Economic Service and Manchester Guardian.

How did Keynes do overall during the 1920s? While it’s difficult to tell because he traded so many contracts, Skidelsky found that in 1927 his net assets totaled some $3.4 million (in today’s dollars). But everything in world markets began to change in 1928, when prices began to drop and he was still long in rubber, wheat, cotton and tin. After the stock market crash of 1929, he would eventually lose some 80% of his net worth, forcing him to put some of his paintings on the market (he ended up not selling them).

By the end of the decade, Keynes’s foray into commodities ended much the same way the 1920s began (with currency losses), only worse. He was on the wrong side of most of his trades when demand collapsed. By 1930, after Wall Street crashed and the world plunged into the Great Depression, wholesale prices had plummeted 20%. Many commodities—wheat, cotton, wool, silk, sugar, rubber and metals—took a 50% hit.

The Great Depression And World War II
Having lost the bulk of two fortunes, Keynes reoriented his thinking about trying to predict market movements. If one couldn’t rely upon a mountain of data analysis and speculative insights on supply and demand, then what was left? As he concluded in his 1936 masterpiece, The General Theory of Employment, Interest and Money, “animal spirits” were the force behind market activity. They were hard to reckon with and impossible to predict, so he needed to adjust to this unpredictable current of irrationality.

As he began to step outside the bounds of classical economics, he was doubtless influenced by his investment failures. Instead of trying to anticipate the market, Keynes now focused on the enterprise, or intrinsic, value of what stocks were worth. He drastically reduced his commodity positions. Then he latched onto high-dividend stocks in the 1930s when most traders were out of the market. It was this contrarian view that launched Keynes as not only one of the first value investors, but a long-term investor who turned his back on short-term valuations and market trends. Even more remarkable was that Keynes stuck to his new investment theory during one of the most challenging decades for stocks in history.

More important, the results from this tumultuous period show Keynes’s resilience and willingness to adapt to changing markets. Keep in mind that during the Great Depression, there were a series of recessions followed by stock market comebacks. Although Keynes wasn’t able to avoid some of the largest sell-offs in 1930-31, 1938 and 1940, the King’s College Chest Fund had a winning streak from 1932 to 1937, a period in which U.S. stock market losses ranged from 43% to 25% percent annually. Over those six years, U.S. big companies lost money in three annual periods. Considering the time in which he was investing, Keynes showed either amazing skill or sizzling luck.

Looking at the three worst recorded years for large U.S. stocks (measured by total return since 1926)—1931, 1937 and 2008—Keynes did reasonably well (he was managing money during only two of them). He only lost about 25% in 1931 when American shares lost 43.3% and gained 8.5% in 1937, the year of a 35% loss in the U.S. He beat the U.K. market in 12 out of 18 years.

Much of Keynes’s innovative style was fueled by his growing preference for stocks, although he contributed a plethora of insights and advances to institutional money management as well. David Chambers of the Cambridge Judge Business School and Elroy Dimson of the London Business School recently published a landmark study that showed “Keynes’s experience in managing the [King’s College] endowment remains of great relevance today.”

What’s even more remarkable is that Keynes was not only managing money for King’s College during his heyday, but institutional funds for the National Mutual Life Assurance Society (he was chairman from 1921 to 1938) and the Provincial Insurance Company (where he was the director from 1923 to his death) and personal funds for himself, friends and colleagues.

Keynes pivoted from his losing macro strategy in the 1920s, in which he underperformed indexes from 1926 through 1928, to a more bottom-up style thereafter. His outstanding performance reflects his modified style: He only fell behind market indexes once in the 1930s (1938 was his worst year, but it was also dismal in the U.S.) and once in the 1940s. His Sharpe ratio and average performance are excellent as well. 

Keynes The Investment Innovator
Keynes’s performance under fire during the 1930s and World War II (his street in London was actually bombed) inspired several generations of investors that followed. His dogged pursuit of value stocks, dividends, cash flow and future earnings established him as a durable “buy and hold” investor who was confident he would be rewarded in the long run.

After his death, the vindication of Keynes’s portfolios proved that he deserved to be emulated. Although his estate was worth at least $22 million (in 2013 dollars) when he died, his contribution to the arts, modern economics and a more stable global economic climate is incalculable.

As an investor, he championed the merit of examining the “earning power” of stocks, looking deep into a business’s ability to survive in a variety of economic conditions, and he abandoned market timing and speculation.

The larger message from Keynes’s investment style is that if he saw value in a company, he ignored the short-term “noise” of the market and held onto it if he saw it as a worthwhile enterprise. He was always looking ahead and didn’t particularly like selling a stock. And if a stock paid dividends, that was icing on the cake.

Even more significant is his recognition of “animal spirits” and the role that mass psychology plays in investing and markets. In doing so, he tackled one of the most elusive—and powerful—elements of markets, behavior that modern economists have still yet to fully understand, much less predict.  

John F. Wasik is a speaker, journalist and author of the book Keynes’s Way to Wealth: Timeless Investment Lessons from the Great Economist (McGraw-Hill, 2013). Most of this article is excerpted from that book. Wasik also is author of The Cul-de-Sac Syndrome and 12 other books. He contributes to Reuters, The New York Times, and The Fiscal Times.