Fisher vs Keynes - Lessons Learned from Financial Times Senior Columnist Tim Harford

Writer Laura Campan

With support from BlackRock and J.P. Morgan, Swissquote hosted its first Investment Day last Thursday – taking a fresh look at both challenges to come and emerging opportunities. 

Financial Times senior columnist Tim Harford gave an interesting speech for the occasion on the investing journey of the greatest economists of the early 20th century, Irving Fisher and John Maynard Keynes.

Let’s dive (back) into this fascinating tale – and draw the right lessons.

Fitness addict, vegetarian, author of the best-selling book “How To Live”, Irving Fisher was a very peculiar man. He was this astonishing and prolific thinker who made a lot of money in the stock market using data and statistics to predict the future – for the greater benefit of Wall Street and financial newspapers. But although Fisher was arguably the greatest economist of the early 20th century, he is best known today for asserting in the New York Times that stocks had reached a “new and permanently high plateau”, just two weeks before the great Wall Street crash of 1929. 

Another great economist who also failed to anticipate the crash was John Maynard Keynes. Unlike Fisher, Keynes was a gambler. After spending most of his career making and losing a fortune, he convinced King’s College London to let him manage their endowment and sold off a substantial portion of the real estate portfolio in order to reallocate the funds to equities – jackpot.    

But then came 1929 and the Great Depression, sparkling a nearly 90% loss in the Dow. And although they spent their whole lives investing in forecasting, Fisher and Keynes didn’t see it coming and responded in a very different way. 

After the crash, Fisher didn’t change his mind and kept investing in the same losing stocks – believing that his precious data could not be (that) wrong. Guess whose life ended up like a tragic cautionary tale? 

Keynes was different. Instead of following his predictions on the ups and downs of the economy, he decided to play it safe and embraced what we know today as the Warren Buffett strategy – investing only in companies he trusted in and sticking to it. “He didn’t do quite as well as Warren Buffett did, but he outperformed the market by 6% per year for 25 years… That’s okay”, said Tim Harford humorously. 

But how could Fisher and Keynes be in the same situation and still meet a different fate? “Fisher’s position was so public. He was writing to the whole of America his personal financial strategy every week. At the beginning of the Great Depression, one commentator blamed the catastrophe on the President, the Treasury Secretary and Irving Fisher. That’s how prominent he was. Yet many of you know him for what he said on the front page of the New York Times a couple of weeks before the 1929 crash… Backward from that.” But the main reason for such a different behavior probably lies in their characters: Fisher struggled changing his mind – especially about his deeply held beliefs – while Keynes didn’t. 

And that’s probably the best lesson we could ever learn from this whole story.