What book by Keynes is Mr Bogle referring to here?

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Lauretta
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What book by Keynes is Mr Bogle referring to here?

Post by Lauretta » Sat Sep 22, 2018 10:06 am

I am watching a video in which Mr Bogle speakes of a chapter in a book by Keynes which he thinks everyone interested in the markets should read. It's at about 43 min here:
https://www.youtube.com/watch?v=3uJbHREmUs4
Do you know which book (and chapter) he refers to?
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petulant
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Re: What book by Keynes is Mr Bogle referring to here?

Post by petulant » Sat Sep 22, 2018 10:16 am

Try the chapter titled "The State of Long Term Expectation" in Keynes's magnum opus "The General Theory of Employment, Interest, and Money." You can probably find an electronic copy of the book if you search around on the Internet.

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JoMoney
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Re: What book by Keynes is Mr Bogle referring to here?

Post by JoMoney » Sat Sep 22, 2018 10:41 am

In his "Little Book of Common Sense Investing", Mr. Bogle quotes saying:
... To understand why past returns do not foretell
the future, we need only heed the words of the great
British economist John Maynard Keynes, written 70
years ago: “It is dangerous . . . to apply to the future inductive
arguments based on past experience, unless one
can distinguish the broad reasons why past experience
was what it was.”

But if we can distinguish the reasons the past was
what it was, then, we can establish reasonable expectations
about the future. Keynes helped us make this distinction
by pointing out that the state of long-term
expectation for stocks is a combination of enterprise
(“forecasting the prospective yield of assets over their
whole life”) and speculation (“forecasting the psychology
of the market”)...
Warren Buffett has also used the Keyne's quote and attributed it to something Keyne's wrote as a book review on another book - Edgar Lawrence Smith's book "Common Stocks as Long Term Investments"
...Astutely, Keynes anticipated a perversity of this kind in his 1925 review. He wrote: "It is dangerous...to apply to the future inductive arguments based on past experience, unless one can distinguish the broad reasons why past experience was what it was." If you can't do that, he said, you may fall into the trap of expecting results in the future that will materialize only if conditions are exactly the same as they were in the past. The special conditions he had in mind, of course, stemmed from the fact that Smith's study covered a half century during which stocks generally yielded more than high-grade bonds...
I found this in the wiki
https://www.bogleheads.org/wiki/Edgar_Lawrence_Smith
... John Maynard Keynes reviewed the book positively in 1925 in An American Study of Shares versus Bonds as Permanent Investments. ...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Fallible
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Re: What book by Keynes is Mr Bogle referring to here?

Post by Fallible » Sat Sep 22, 2018 11:05 am

petulant wrote:
Sat Sep 22, 2018 10:16 am
Try the chapter titled "The State of Long Term Expectation" in Keynes's magnum opus "The General Theory of Employment, Interest, and Money." You can probably find an electronic copy of the book if you search around on the Internet.
I think this is right. Jack Bogle also has written often about this chapter, including in his Foreword to a book I have, Keynes's Way to Wealth. In the Foreword, titled "Keynes the Investor," he writes about two factors that Keynes focused on in "General Theory," enterprise and speculation, that he says explain "The State of Long-Term Expectation" for investors.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

staythecourse
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Re: What book by Keynes is Mr Bogle referring to here?

Post by staythecourse » Sat Sep 22, 2018 11:26 am

JoMoney wrote:
Sat Sep 22, 2018 10:41 am
In his "Little Book of Common Sense Investing", Mr. Bogle quotes saying:
... To understand why past returns do not foretell
the future, we need only heed the words of the great
British economist John Maynard Keynes, written 70
years ago: “It is dangerous . . . to apply to the future inductive
arguments based on past experience, unless one
can distinguish the broad reasons why past experience
was what it was.”

But if we can distinguish the reasons the past was
what it was, then, we can establish reasonable expectations
about the future. Keynes helped us make this distinction
by pointing out that the state of long-term
expectation for stocks is a combination of enterprise
(“forecasting the prospective yield of assets over their
whole life”) and speculation (“forecasting the psychology
of the market”)...
Thanks for that snippet. That is a MUCH better verbage of the usual (incorrectly) used mantra on this site of "past performance...". If I was interpreting Mr. Bogle he is referring to not pay attention to past results UNLESS there is a clear explanation of why those results should continue going forward. Mr. Bogle may not be a believer in factor investing OUTSIDE of the first one which is beta (market). It is that ERP and its expectation of it going forward of why it is reasonable for investors to expect (if it happens or not different) to to continue going forward.

That snippet I think needs to be stickied as it makes more sense then the incorrectly recited usage of the SEC footer warning.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Lauretta
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Re: What book by Keynes is Mr Bogle referring to here?

Post by Lauretta » Sun Sep 23, 2018 4:10 am

petulant wrote:
Sat Sep 22, 2018 10:16 am
Try the chapter titled "The State of Long Term Expectation" in Keynes's magnum opus "The General Theory of Employment, Interest, and Money." You can probably find an electronic copy of the book if you search around on the Internet.
Thank you, I found it and read it. It is related only somewhat indirecty to Bogle's formula for estimating future returns (by looking at multiple expansion/contraction - which I think would correspond to what Keynes calls speculation - as well as dividend yields and earnings growth) but yes, it seems the Chapter he was referring to.
I am going to read the rest of the book now. :happy
When everyone is thinking the same, no one is thinking at all

Valuethinker
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Re: What book by Keynes is Mr Bogle referring to here?

Post by Valuethinker » Sun Sep 23, 2018 5:25 am

Sir John Hicks wrote the best summary of Keynesian economics.

"The Worldly Philosophers" by Robert Heilbroner is a good introduction as to how Keynes fits into the intellectual history of economics.

Even those refuting Keynes use his terms and basic ideas.

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Lauretta
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Re: What book by Keynes is Mr Bogle referring to here?

Post by Lauretta » Sun Sep 23, 2018 5:39 am

Valuethinker wrote:
Sun Sep 23, 2018 5:25 am
Sir John Hicks wrote the best summary of Keynesian economics.

"The Worldly Philosophers" by Robert Heilbroner is a good introduction as to how Keynes fits into the intellectual history of economics.

Even those refuting Keynes use his terms and basic ideas.
Thanks, these are useful references; I am reading the beginning of The General Theory of Employment, Interest, and Money and it's quickly becoming clear that the book must be understood in the wider context of the history of economics (to understand e.g. how Keynes arguments differ from those of classical theories).
When everyone is thinking the same, no one is thinking at all

petulant
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Re: What book by Keynes is Mr Bogle referring to here?

Post by petulant » Sun Sep 23, 2018 6:08 am

Lauretta wrote:
Sun Sep 23, 2018 5:39 am
Valuethinker wrote:
Sun Sep 23, 2018 5:25 am
Sir John Hicks wrote the best summary of Keynesian economics.

"The Worldly Philosophers" by Robert Heilbroner is a good introduction as to how Keynes fits into the intellectual history of economics.

Even those refuting Keynes use his terms and basic ideas.
Thanks, these are useful references; I am reading the beginning of The General Theory of Employment, Interest, and Money and it's quickly becoming clear that the book must be understood in the wider context of the history of economics (to understand e.g. how Keynes arguments differ from those of classical theories).
Yes, I wouldn't read it as a guide to existing theory today. A textbook on macroeconomics would give you a better introduction to prevailing theories today if you don't have a background in academic economics.

Valuethinker
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Re: What book by Keynes is Mr Bogle referring to here?

Post by Valuethinker » Sun Sep 23, 2018 7:12 am

petulant wrote:
Sun Sep 23, 2018 6:08 am
Lauretta wrote:
Sun Sep 23, 2018 5:39 am
Valuethinker wrote:
Sun Sep 23, 2018 5:25 am
Sir John Hicks wrote the best summary of Keynesian economics.

"The Worldly Philosophers" by Robert Heilbroner is a good introduction as to how Keynes fits into the intellectual history of economics.

Even those refuting Keynes use his terms and basic ideas.
Thanks, these are useful references; I am reading the beginning of The General Theory of Employment, Interest, and Money and it's quickly becoming clear that the book must be understood in the wider context of the history of economics (to understand e.g. how Keynes arguments differ from those of classical theories).
Yes, I wouldn't read it as a guide to existing theory today. A textbook on macroeconomics would give you a better introduction to prevailing theories today if you don't have a background in academic economics.
It does.

However there is a problem. Economics is a social science which does not know its own history. Thus, for example, it often mistakes institutional arrangements (which are bluntly obvious to a social psychologist, cognitive psychologist, anthropologist, sociologist or economic historian or even a linguist) as natural laws*. We saw during the financial crises that an entire generation of academic economists had grown up not studying Keynes--- just when the circumstances occurred for which Keynes had the most penetrating insights.

(* Karl Polanyi, The Great Transformation -- is a book that points this out -- the primacy of institutional arrangements and tacit norms. That form of institutional economics got forgotten in the pursuit of mathematical models, but it may be making something of a comeback.)

The philosophical roots of economic theory are important to understand. If you don't know about Thorsten Veblen, for example, then you will struggle to understand consumer behaviour-- you cannot understand the market for cars if you don't know about "conspicuous consumption" (sometimes called virtue signalling, in other contexts).

https://www.amazon.co.uk/Keynes-Return- ... B9G4STEXQX

Lord Skidelsky (a Conservative Lord in the House of Lord -- ie sits in the UK legislative's Upper House) is the leading modern biographer of Keynes. Thus, what he has to write about Keynes and the modern world is worth a read.

Heilbroner is a good and breezy introduction. Not sure who I would pick after Heilbroner -- I read his book in the 1970s and it was in its umpteenth edition then, so it only takes the story so far.

https://www.amazon.co.uk/Great-Economis ... B9G4STEXQX

https://www.amazon.co.uk/Economic-Thoug ... ic+thought

https://www.amazon.co.uk/Brief-history- ... ic+thought

probably 3 decent places to start.

https://www.amazon.co.uk/History-Econom ... ic+thought

looks good - potted biographies of the important contributions of thinkers post Keynes.

https://www.amazon.co.uk/Great-Economis ... B9G4STEXQX

Linda Yueh is a good writer.
Last edited by Valuethinker on Sun Sep 23, 2018 7:29 am, edited 1 time in total.

Jeff Albertson
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Re: What book by Keynes is Mr Bogle referring to here?

Post by Jeff Albertson » Sun Sep 23, 2018 7:20 am

A more general economics book, "What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems", by Linda Yeuh.
https://www.amazon.com/What-Would-Great ... 250180538/

Rogoff also compares it to the Heilbroner book.
"An extremely engaging survey of the life times and ideas of the great thinkers of economic history, woven together with useful discussions of how their ideas still shape economic policy today. Yueh’s book is reminiscent of Heilbroner’s marvelous classic The Wordly Philosophers, but more focused on contemporary debates on inequality, trade and productivity. Although targeted at readers interested in economic issues, this book would also make an excellent supplementary reading for undergraduate courses in economics, politics and social studies." --Kenneth Rogoff

Valuethinker
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Re: What book by Keynes is Mr Bogle referring to here?

Post by Valuethinker » Sun Sep 23, 2018 7:41 am

https://www.maynardkeynes.org/keynes-th ... lator.html

interesting stuff about JM Keynes as an investor-- he switched from being what we would call a macro speculator (or hedge fund) now to what we now know as Value Investing. And was highly successful.

http://www.chrisleithner.ca/newsletter/ ... letter.pdf
Following Moggridge, who first noticed that Keynes’s approach changed
fundamentally during the early 1930s, Figure 1 divides Keynes’ tenure into two
periods: 1925-1932 and 1933-1946. According to Chambers and Dimson, Keynes
began managing the Discretionary Portfolio employing a top-down
investment approach using monetary and economic indicators to
market-time his switching between equities, fixed income and cash. …
[During the early 1930s,] Keynes radically switched his investment
approach to a bottom-up, buy-and-hold stock-picking approach.
Figure 1 indicates that during the earlier period his results were relatively
pedestrian: the geometric mean is 5.8% per year (versus an arithmetic mean of
12.8%) and the median return is 6.4%. During the later period, the geometric
mean is 17.9% (the arithmetic mean is 20.0%) per year and the median is 18.3%.
How did Keynes perform vis-à-vis a benchmark? Figure 2 compares the
Discretionary Portfolio’s results to the British market’s. Over time, both
improved; the former’s, however, improved relative to the latter’s. During the
entire (1925-1946) period, the Discretionary Portfolio returned a geometric mean
of 13.0% per year; the British market, on the other hand, returned only half as
- 9 -
much (6.5%). Hence Keynes “outperformed” the market by 6.5 percentage points
per year. During the earlier sub-period (1925-1932), the British market returned a
geometric average of 4.0% per year versus the Discretionary Portfolio’s 5.5%;
Keynes thus outperformed by a much smaller margin (1.5 percentage points per
year). During the latter sub-period (1933-1946), on the other hand, the British
market returned 9.1% per year versus the Discretionary Portfolio’s 17.9%; Keynes
thus outperformed by a much more considerable margin of 8.8 percentage points
per year.
As was pointed out in a Letter to the Editor in some newspaper, we should not ignore in the latter Keynes strong connections to the Establishment via the Bloomsbury Group and as Master of his college at Cambridge, adviser to governments etc. He probably did a fair bit of what we would now call Insider Trading (which was not illegal then).

Valuethinker
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Re: What book by Keynes is Mr Bogle referring to here?

Post by Valuethinker » Sun Sep 23, 2018 8:23 am

Jeff Albertson wrote:
Sun Sep 23, 2018 7:20 am
A more general economics book, "What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems", by Linda Yeuh.
https://www.amazon.com/What-Would-Great ... 250180538/

Rogoff also compares it to the Heilbroner book.
"An extremely engaging survey of the life times and ideas of the great thinkers of economic history, woven together with useful discussions of how their ideas still shape economic policy today. Yueh’s book is reminiscent of Heilbroner’s marvelous classic The Wordly Philosophers, but more focused on contemporary debates on inequality, trade and productivity. Although targeted at readers interested in economic issues, this book would also make an excellent supplementary reading for undergraduate courses in economics, politics and social studies." --Kenneth Rogoff
We crossed posts ;-). Yes that looks like an excellent book.

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