It takes a brave heart and a clear mind to buy stocks steadily as they are losing 80% or more of their market value.

Like the great American investor Benjamin Graham, who later trained Warren Buffett, Keynes was a firm believer that stock prices often deviate from business value. When the market slams stocks down below what the underlying businesses are worth, Keynes felt, the patient long-term investor regards such declines as good news, not bad.

Chapter 12 of Keynes’ book The General Theory of Employment, Interest and Money (1936) is his most concentrated and eloquent discussion of the courage and independence that are the hallmark of the true investor.

Here are a few of my favorite passages, excerpted verbatim (with only some spellings and punctuations Americanized, and paragraph breaks added for ease of reading online).

[Most professional investors] are concerned, not with what an investment is really worth to a man who buys it “for keeps,” but with what the market will value it at, under the influence of mass psychology, three months or a year hence.

 

Moreover, this behavior is not the outcome of a wrong-headed propensity…. For it is not sensible to pay 25 for an investment of which you believe the prospective yield to justify a value of 30, if you also believe that the market will value it at 20 three months hence.

 

…The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is “to beat the gun,” as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.

 

…professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole….

 

We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.

 

…Investment based on genuine long-term expectation is so difficult to-day as to be scarcely practicable. He who attempts it must surely lead much more laborious days and run greater risks than he who tries to guess better than the crowd how the crowd will behave; and, given equal intelligence, he may make more disastrous mistakes….

 

It needs more intelligence to defeat the forces of time and our ignorance of the future than to beat the gun. Moreover, life is not long enough; — human nature desires quick results, there is a peculiar zest in making money quickly, and remoter gains are discounted by the average man at a very high rate.

 

The game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll….

 

Finally it is the long-term investor, he who most promotes the public interest, who will in practice come in for most criticism, wherever investment funds are managed by committees or boards or banks. For it is in the essence of his behavior that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.

 

Many of today’s fund managers, afraid to look too different from the market lest their investors withdraw even more money on the first hint of underperformance, have told me they read these passages from Keynes with a twinge of envy in their hearts.

If you manage your own money, Keynes’ words are yet another reminder that investing isn’t a battle between you and the markets; it is, above all, a battle with yourself to prevent your emotions from dominating your decisions.