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Tuesday, August 17, 2010
Two of my favorite investment quotes are as follows:
1) John Maynard Keynes: "The market can stay irrational longer than you can stay solvent."
2) Baron Rothschild: "The time to buy is when there is blood in the streets."
Keynes, of course, is the most well-known economist of the 20th century. In "The General Theory of Employment, Interest, and Money" published in 1936, he proposed a new theory on how the macroeconomy worked, which provided a policy to lead the nation out of the Great Depression. What many don't know is that Keynes was a remarkable investor (the Warren Buffet of his day) and also a speculator who made and lost enormous fortunes. To me, the quote applies very well to today's bond yields. Many investors are scratching their heads wondering how yields can be so low given the humongous supply coming over the next few years. Furthermore, the low yields can be said to be a bubble, which is another way to say that the market is severely irrational.
Baron Rothschild is the figurehead of the contrarian school of investing. One can imagine that, if he was around today, he would view the present negative environment as a potential great opportunity. He made a killing by buying British bonds after Napoleon's defeat at Waterloo. It is ironic that he bought them because he had inside information - he knew ahead of everyone else that Wellington had won the battle.
What is your favorite investment quote?