Had the following list of influential investors combined their net worth, they could have bought South Africa (and probably made a profit). Even in the times of boom-and-bust cycles, subprime mortgages, credit card debt and corporate corruption, their advice and philosophy to investing stood true. Know the company and know the math, they argue, and you’ll beat the market.
Many of these influential investors got their knocks during the Great Depression, lessons they used to profit from the Arab Oil Embargo, World War II, the Great Recession and other market grenades. Most eschewed “wizardly” technical analysis, preferring simple number crunching and intense market research. As Warren Buffet advised, “Rule 1: Never lose money. Rule 2: Never forget Rule 1.”
During the 1930s, as Colorado farmers suffered from the Dust Bowl, Charles E. Merrill – “Good Time Charlie” – was enjoying his estate in Palm Beach, Florida. How did he manage it? In 1914, Merrill partnered with Edmund Lynch to form the investment company, Merrill Lynch and Company. A long-term investor, Merrill focused on growth. He grew the Safeway food chain into more than 3,500 stores. He detested short-term speculation and, later in life, instructed his employees to teach new couples the foundations of stock market investing.
After graduating with a Bachelor’s of Science in Chemistry, Thomas Rowe Price, Jr., promptly switched to finance. Price became known as the father of growth stocks, selecting companies that emphasized research and development and had a strong sales team. Then he held on for dear life. When he finally sold his 3M shares after 50 years, he made a profit of 17,000 percent.
Founder of the scuttlebutt research approach, Fisher was mostly unknown outside of premium financial circles until he wrote Common Stocks and Uncommon Profits, first published in 1958 and in print ever since. The influential investor was a quiet, timid man with a bold investment strategy: to hell with dividends and to heaven with growth stocks. His portfolio never held more than 30 stocks. His favorite poem was “If” by Rudyard Kipling, and his favorite mantra was, “The best time to sell a stock is almost never.”
Warren Buffett, chairman of Berkshire Hathaway, Inc., has a net worth of $62.7 billion. He has lived in the same house since 1958, a home he purchased for $31,500. Buffett is famous for his savvy investment powers and personal frugality. He remains a notable investor and commentator on Wall Street and has pledged to donate 99 percent of his fortune to philanthropic causes. What made the “Oracle of Omaha” so rich? Value stocks! Capitalize on market fluctuations, he recommended, and on a margin of safety in every investment.
The stock market has averaged around seven percent annually (not adjusted for inflation). But Peter Lynch beat that number handily, and it started on a golf course. Lynch was a caddy for the president of Fidelity Investments in the early 1960s. With his foot in the door, Lynch advanced to intern, then director of research, and ultimately to fund manager of the $18 million Magellan Fund. When he retired in 1990, the fund held more than $14 billion in assets. Annual returns averaged $29.2 percent. As of 2003, no mutual fund claimed better 20-year performance.
George Soros, Hungarian emigrant and World War II survivor, was selling souvenirs in London and was unhappy about it. So he wrote to all the managing directors of merchant banks in the area, received a reply here and there, and obtained his first finance job at Singer & Friedlander. The influential investor came into his own during the 1950s, a period in which Soros developed the investment theory of reflexivity, the idea that the market follows “virtuous or vicious” valuation cycles. In 1973, he founded the Quantum hedge fund, which remains one of the most successful hedge funds in existence.
Templeton was the king of stock pickers. He rejected technical analysis and EMH, and preferred in-depth fundamental analysis. Know the company, he believed, and you’ll know your stock. He became rich by buying and holding 100 shares of every NYSE company during the Great Depression. He was an avid bargain hunter, buying when there was “blood in the streets.” Yet he drove his own car, lived conservatively and donated much of his multi-billion fortune through the John Templeton Foundation.
Benjamin Graham was full partner at Newburger, Henderson and Loeb by the age of 26. He was one of the first to delineate and systematize the difference between investing and speculating. He said< “that an investment is most intelligent when it is most businesslike,” words which his disciples Warren Buffett, Irving Kahn and Philip Fisher would make the foundations of their investing strategies. Buffett once recalled that Graham wanted every day to do something foolish, something creative, and something generous.
This influential investor epitomized the “Steady Eddy” approach. John C. Bogle is a stalwart believer in index funds, that is, mutual funds which attempt to replicate the average growth of stock index regardless of market conditions. Buy and hold, he argues. “Don’t look for the needle in the haystack. Just buy the haystack!” Under this simple advice, the Vanguard Group, which he founded in 1794, grew to become the largest mutual fund company in the world.
Carl Icahn took on Wall Street swinging. He attempted a hostile takeover of U.S. Steel in 1986. He bought TWA in 1985, sold the company’s assets to pay its debts, and sold TWA three years later for a personal profit of $469 million. Controlling positions and acquisitions are his bread and butter. With $26 billion in his pocket, suffice it to say, his philosophy worked out splendidly. Who would have thought the New York School of Medicine dropout would found a company generating $15 billion a year and employing 60,000 workers?
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ABOUT THE AUTHOR:
Lukas Neely is a former Hedge Fund Portfolio Manager and author of the Amazon #1 bestselling book (valuation), Value Investing: A Value Investors Journey Through The Unknown. He is also the cofounder of EndlessRise Investment Research, the provider high quality investment idea generation, serving investment funds, portfolio managers, and sophisticated investors. www.ValueInvestorConfidential.com
Photos Courtesy of: Charles Merrill (New York Times), Thomas Rowe Price, Jr. (Investopedia), Philip Fisher (Investopedia), Warren Buffett (Twitter profile), Peter Lynch (Investopedia), George Soros (GeorgeSoros.com), Sir John Templeton (Templeton.org), Benjamin Graham (Cabot.net), John Bogle (Vanguard), Carl Icahn (www.oilandenergydaily.com).