What can you learn from the Investment Greats?
Over recent months I've been writing a series on the world's greatest investors, and it's been a lot of fun, at least for me. I've looked into the investing styles and track records of 31 of the best investors we've seen -- you can see the list at the end of this article -- as well as another couple of dozen that didn't make the cut. So what can we learn from them?
Think differently
While they all followed different routes to their success, and applied different methodologies to tracking down worthwhile investments, something they have in common is a determination to figure out for themselves what works, rather than blindly following any investment fad.
In most cases that requires them to go against the herd, adopting a contrarian frame of mind. Carl Icahn put it bluntly: “The more people that think you're wrong, the better you're going to do in the long run.”
Active versus passive
While that opinion would be shared by the majority of these investors, John Bogle takes a different approach. The inventor of index trackers, his view is that we are simply unable to identify in advance the shares that will outperform, so we shouldn't waste our time trying. “Why look for the needle in the haystack? Buy the haystack.”
Of the investors I've written about, Bogle is alone in advocating a passive, index-tracking, approach.
But while he's willing to accept the price that Mr Market offers him, Bogle is by no means a sheep -- his approach to fund management is a radical departure from the old accepted practice, and is another example of the independence of mind demonstrated by these investors.
Value versus growth
Traditionally, investing styles have been divided into the 'value' and 'growth' camps, but the distinctions are not always clear. Even archetypal growth stock investors, such as Philip Fisher and T. Rowe Price, believed they were buying shares that were under-appreciated by the market, even if they were trading towards the 'expensive' end of the price/earnings ratio (P/E) spectrum. Investors like Jim Slater, Peter Lynch and John Neff use variants of the PEG factor to try to combine value and growth.
Can we time the market?
A clearer division exists between those who believe we can time the markets and those who believe we can't. Home-grown gurus Anthony Bolton and Neil Woodford, for example, take views on overall market valuations and on where we are in the cycle, but their opinions on those questions are diametrically opposed.
John Templeton, on the other hand, was famously of the opinion that timing the market was a futile exercise: “The best time to invest is when you have money. This is because history suggests it is not timing which matters, but time.” His successor, Mark Mobius, seems to agree.
Top-down versus bottom-up
Closely related to the market timing issue is the question of whether we search from the top down, or from the bottom up -- in other words, should we focus on general trends in technology, trade, and investor sentiment, or should we simply search for companies that meet our financial criteria.
Many investors take a hybrid approach to this. Ken Fisher is very much a top-down investor, identifying trends in various sectors, as is Jim Rogers, although they are operating on different timescales; Rogers' horizon could be measured in generations rather than years -- “selling China in 2008 would be like selling America in 1908”.
Seth Klarman, in contrast, is sceptical of our ability to call these trends correctly: “I don't know anybody with a really good, long-term, demonstrated record of success with macro forecasting.”
A rewarding challenge
Other tactical differences include the use of leverage, the willingness to hold short positions, and the ideal holding period for investments (you'll notice there are no day-traders on the list).
To succeed in the immensely complex arena of investment, we need to integrate many disciplines; this is a huge challenge, and it's part of what makes it such a fascinating and rewarding activity. The behavioural finance approach of Ken Fisher and James Montier, for example, requires us not just to think about the market's irrationality but also our own. As Montier said, “to make better decisions, we need to think more about thinking".
Perhaps that challenge, and continuous learning that it creates, is what inspired so many great investors -- not least Warren Buffett and Charlie Munger -- to remain actively involved into relatively old age.
Who are your favourite investors? Are they on our list? Why not share your thoughts in the comments box below.
Our investing greats (in A-Z order):
John Bogle | Anthony Bolton | Warren Buffett | David Dreman | Ken Fisher | Philip Fisher | Robin Geffen | Ben Graham | Bill Gross | Carl Icahn | Seth Klarman | Jesse Livermore | Peter Lynch | Bill Miller | Mark Mobius | James Montier | Charlie Munger | John Neff | Crispin Odey | John Paulson | T. Rowe Price | Jim Rogers | Wilbur Ross | Ian Rushbrook | Jim Slater | George Soros | John Templeton | Nils Taube | Ralph Wanger | Neil Woodford | Martin Zweig
