Michael Harkin’s speech at Grant’s 2011 Conference: “Embrace Reason, Shun Theories or Think Big, and Go Broke”

Michael Harkin is great value investor with a formidable record. He is worth reading carefully. The following is his rate of compounded returns after fees:


Last 12 Years…..+12.7%

Since Inception 1980…..+12.9%

Here is his speech at James Grant’s annual conference in New York.

“Embrace Reason, Shun Theories or Think Big, and Go Broke”

My speech, all gall, divides in three parts.  What you shouldn’t do, what you should do, and what Jim wants me to do.  “Aw Michael, just give them CUSIP numbers,” was my invite.  I’m coming to that presently.  The face of American investing is a spittle flying, neck vein popping, barnyard noise making character who spews economic nostrums twenty to the dozen.  Foretell the economic future, make it loud and Croesus will grow jealous of your wealth shortly.  Right.  A generation of American investors has been taught this, and the idea is not only wrongheaded, it is dangerous, and I want to spend a few minutes illustrating why, but first a brief moment of personal history.

Slide 1–General Theory

When I was an eighteen year old undergraduate, I sat in the stacks at Cornell reading John Maynard Keynes’ General Theory of Employment, Interest and Money because I wanted to know something of the original flavor of this one work I had heard so much about.  I was besotted instantly, and within a fortnight I had consumed every major work that he wrote.  Worse yet, I had started using words like fortnight and besotted.  To an undergraduate mind, Keynes was instantly addicting.  He was also a trading legend.  He once cornered the market in wheat, the shorts surprised him by forcing delivery, and he calmly proposed to the Cambridge Dons that they vacate Kings College Chapel, so he could use it as his personal silo.  In the event, this didn’t fly, but imagine the cheek in trying it on.  He then claimed the wheat wasn’t in good deliverable form, got the sellers to clean it, the market recovered in the interim and he made a profit.  Great stuff, no?  And chapter 12 of this book is the wittiest and wisest 17 pages you will ever read on markets. Well worth the price of admission all by itself.   It is also part of an elaborate front to conceal a dirty little secret, one that I only found out many years later from this book.

Slide 2–Economist as Savior

This is Robert Skidelsky’s brilliant work of scholarship, in three volumes by the way, and the title of this volume tells the story in typical British understatement.  Keynes really was the savior of western capitalism.  He also wasn’t what he seemed to be, and here I have to let Robert Skidelsky tell you the tale directly.  This is from pages 524 and 525, lightly edited by me for concision.

“In 1929 Keynes had lost practically all his money, in 1931 he even tried to sell his two best pictures, his Matisse and his Seurat, but found no buyers.  Keynes personal investment philosophy changed with his economic theory” says Skidelsky, which if I can interject, is better than you can say for most of us.    After all, Keynes did once say, “When the facts change, I change my opinion.  What do you do, sir?”  Back to Skidelsky, “In the 1920’s Keynes saw himself as a scientific gambler.  He speculated on currencies and commodities.  His aim was to play the cycle.  This was the height of his “barometric” enthusiasm, when he believed it was possible, by forecasting short term rhythms, to beat the market.  The gambling instinct was never quite extinguished.”

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