A game of Snap, of Old Maid, of Musical Chairs – John Maynard Keynes

keynes
John Maynard Keynes (5 June 1883 – 21 April 1946) – Wikipedia

“For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs — a  pastime in which he is victor who says Snap neither too soon nor too late, who passed the  Old Maid to his neighbour before the game is over, who secures a chair for himself when  the music stops. These games can be played with zest and enjoyment, though all the
players know that it is the Old Maid which is circulating, or that when the music stops  some of the players will find themselves unseated.”

This quote is from  The General Theory Of Employment, Interest, And Money
– Chapter 12 “The State of Long-term Expectation” (John Maynard Keynes, 1936).

Legendary investor Warren Buffett has also made reference to John Maynard Keynes’ General Theory of Employment, Interest, and Money Chapter 12 (“The State of Long-term Expectation”). In a November 2011 interview with Business Wire CEO Cathy Baron Tamraz, Warren Buffett said: “If you understand chapters 8 and 20 of The Intelligent Investor (Benjamin Graham, 1949) and chapter 12 of the General Theory (John Maynard Keynes, 1936), you don’t need to read anything else and you can turn off your TV.” This advice from Warren Buffett involves two milestone books on investing and economics

John Maynard Keynes made this  “game of Snap, of Old Maid, of Musical Chairs” remark in the context of saying that most professional investors and speculators were “largely concerned, not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the
conventional basis of valuation a short time ahead of the general public.”

Keynes went on to say: “They 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 behaviour is not the outcome of a wrong-headed  propensity. It is an inevitable result of an investment market organised along the lines
described. 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.

“Thus the professional investor is forced to concern himself with the anticipation of  impending changes, in the news or in the atmosphere, of the kind by which experience  shows that the mass psychology of the market is most influenced. This is the inevitable
result of investment markets organised with a view to so-called ‘liquidity’. Of the maxims  of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the  doctrine that it is a positive virtue on the part of investment institutions to concentrate
their resources upon the holding of ‘liquid’ securities. It forgets that there is no such thing  as liquidity of investment for the community as a whole.”

Keynes then added: “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.

“This battle of wits to anticipate the basis of conventional valuation a few months hence,  rather than the prospective yield of an investment over a long term of years, does not  even require gulls amongst the public to feed the maws of the professional; — it can be
played by professionals amongst themselves. Nor is it necessary that anyone should keep  his simple faith in the conventional basis of valuation having any genuine long-term  validity. For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs — a
pastime in which he is victor who says Snap neither too soon nor too late, who passed the Old Maid to his neighbour before the game is over, who secures a chair for himself when  the music stops. These games can be played with zest and enjoyment, though all the
players know that it is the Old Maid which is circulating, or that when the music stops  some of the players will find themselves unseated.”

Keynes then put it another way: “Or, to change the metaphor slightly, 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; so that
each competitor has to pick, not those faces which he himself finds prettiest, but those  which he thinks likeliest to catch the fancy of the other competitors, all of whom are  looking at the problem from the same point of view. It is not a case of choosing those  which, to the best of one’s judgment, are really the prettiest, nor even those which  average opinion genuinely thinks the prettiest. 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 practise the fourth, fifth and higher  degrees.”

Benjamin Graham’s The Intelligent Investor Chapter 8 (The Investor and Market Fluctuations)

Benjamin Graham’s The Intellingent Investor Chapter 20 (Margin of Safety As The Central Concept Of Investment)

 

 

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