As part of his "World's Greatest Investors" series, here are key insights from the world’s top investors, writes Steve Pomeranz, CFP, and host of an investment program on NPR affiliates.
On one of my recent NPR radio commentaries, I spoke about Howard Marks and shared some of his investing philosophies with you. Today, I want to share 12 key insights that are commonly shared by the 99 top investors in the world…but, first, let me give you some background.
Magnus Angenfelt is a retired hedge fund manager and financial journalist from Sweden who recently wrote a book titled, The World’s 99 Greatest Investors: The Secret of Success where he looks at the top 99 investors. He selected them by highest absolute returns irrespective of investment style. His list includes some names you know and many you likely do not—folks such as John Bogle, Warren Buffett, Leon Cooperman, Ken Fisher, Mario Gabelli, Carl Icahn, Mark Mobius, Julian Robertson, George Soros, David Tepper, Paul Tudor Jones, Martin Zweig and more.
Angenfelt says, on average, his chosen 99 most successful investors outperformed the market by about 12 percentage points each year for 25 years.
Investing styles of the most successful investors
In the top 99, investing styles vary quite a bit, from value investing to speculating to quantitative-based trading. More than half of the top 99 are from the U.S. and, of these, about half are value investors who buy good stocks when they are marked down.
But his list does not include prominent investors such as bond king Bill Gross of PIMCO simply because, as Angenfelt puts it, neither Gross nor any other investor who solely focuses on bonds made the cut because their returns are simply too poor, relative to returns from equity investments.
The list has no women either, again, simply because no women made the cut purely on returns delivered over 25 years, even though the author names women investors such as Susan Byrne of Westwood Management who has produced better returns than many men—but not enough to qualify in the top 99.
12 Insights from World's Top Investors
And one of my favorite investment websites, GuruFocus, compiled a list of Angenfelt’s top 12 insights that were common to almost all of the top 99. Here’s the list:
1. Be true to yourself.
As Guy Spier, a Harvard-trained investor puts it, “My job is to be Guy Spier. I’m not going to do a very good job of being Bill Ackman or Warren Buffett, but I’m going to do a damned good job of being Guy Spier, better than anybody on the planet. Everybody’s path is unique and I think it’s really, really important that we find our own path.”
2. Know your strengths and weaknesses.
3. Consider the risks, not the potential.
This one goes back to Howard Marks’ comment on playing “not loser’s tennis,” which is basically about focusing on the risks as much as on the rewards so you avoid loss-making investments.
4. Be prepared to change your strategy if the market changes.
This is a key insight—a lot changes over a 25-year period. Just compare, for example, our world and lifestyle in 1989 to where we are today in 2014. Much has changed. So, these top 99 investors have been very adept at keeping their ears to the ground for seismic changes in the investing landscape and making moves ahead of others to deliver outstanding returns…without being stuck to rigid strategies, while also being core to their fundamental approach to investing. For example, Buffett was a value investor then and is a value investor now, but he has changed his strategy over the years— from small businesses to big businesses, from domestic-only to international, and from non-tech to selectively tech. So, markets evolve and great investors evolve with them.
5. Don’t invest on the basis of tips.
I think many individual investors are fairly shallow on due diligence and tend to implicitly piggy-back off of others. If you want your portfolio to truly shine, do a lot of your own research—especially on tips—before you buy or sell.
6. Don’t let your emotions cloud your judgment.
This is one that every investor knows about, but most of us appear to be powerless against our own emotions. But I think you can train yourself to be an objective investor, and the best way to do so has more to do with upfront research and due diligence. If you get that right, chances are emotions will not cloud your judgment. In life too, I think our emotions tend to rule where we are low on facts about the situations we face; and, in such cases, we tend to gut react. But where you know your facts and the playing field well, emotions play a much smaller role in decision-making and objectivity kicks in. So, link point # 6 to thorough investment research, and I think half your battle is won.
7. Don’t invest in something you don’t understand.
Just as Buffett famously sat out the dot-com boom.
8. Be disciplined and work hard.
Truly evaluating an investment from all angles is a lot of work, so discipline and hard work are always key pillars that hold up great investment portfolios.
9. Only do businesses with reputable companies. Guard your reputation.
Reputation really is everything for an ethical business person or investor. For example, Warren Buffett has been invited into several perilous situations through his investing career, simply because people knew he could be trusted under the worst of circumstances. And Buffett has profited handsomely from those plays—without an iota of unethical behavior.
10. Don’t underestimate the efficiency of the market. Don’t overestimate its perfection.
Value investors believe that the market often misprices investments—on the upside and the downside. Savvy investors also understand that it’s foolhardy to take on the market because the market almost always has more staying power than you do. So even where you know you’re right, the market very easily could go against you far longer than you can tolerate.
11. It’s not wrong to make mistakes, but it is wrong to fail to learn from them.
12. Patience is a virtue, in investing as in all else.
Where you’ve done your due diligence correctly, it pays to wait and sit out the bad times…or sometimes add to your positions if the market moves against your stocks. But patience only makes sense if you have done your research thoroughly and are very sure your investment thesis is fundamentally sound. On the flip side, it’s a fool’s errand to buy a stock on hearsay and sit patiently while it tanks for good reason. In many cases, you’re often better off cutting your losses than watching your position sink. So, yes, patience is a virtue—but make sure you use it in context.
As Anthony Robbins once said, “The secret to success in any field is to find what successful people do, think about and act on, and do the same.” So, hopefully, you’ll incorporate some of these 12 points into your investing approach going forward, so you can make the top 99 list 25 years from now.
To find out more, go to www.stevepomeranz.com
