3 Famous Investors and Their Lessons for Beginners
In this article, we will examine 3 of the most famous investors in the world, see how they achieved their success and explore what lessons we can learn from their careers and apply to our own.
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Famous Investors and Their Lessons
Whether you are a completely new to the financial markets or a highly experienced investor, you should always be willing and eager to learn as much as possible about investing and the financial markets. And, who better to learn from than some of the most famous investors in the world?
The famous investors we are going to look at have all applied their strategies and philosophies to great effect, making a fortune for both themselves and others. There are a lot of things we can learn from their success and apply to our own journeys in the financial markets.
|“The intelligent investor is a realist who sells to optimists and buys from pessimists.”|
The first entry on our list of famous investors, Benjamin Graham, is considered by many as the father of value investing. In 1949, he wrote the acclaimed book The Intelligent Investor which is still in print and considered an important piece of literature to many in the investment world.
Graham drew a strict distinction between speculation and investing and was a proponent of the belief that the price of a share does not always necessarily reflect the value of a share. This is the central tenet of value investing, in which under-priced shares are sought on the market.
He believed strongly in scrutinising the fundamentals of a company in order to gauge its real value, as opposed to paying much attention to the whims of the market. Furthermore, instead of looking for slightly under-priced stocks he argued that you should instead seek shares which are hugely under-priced, giving yourself a wide ‘margin of safety’.
Between the years of 1936 - 1956 Graham achieved an average annual return of around 20%. His greatest success was the acquisition of a 50% stake in the Government Employees Insurance Company (GEICO) for $712,000 through his Graham-Newman Partnership in 1948. By 1972 this position was worth $400 million.
What Can We Learn from Benjamin Graham?
Graham’s whole philosophy revolves around the importance of good fundamental research and investing based solely on this research without taking into account market sentiment.
Although this view may be controversial to those who follow different schools of market ideology, there is still something everyone can take away from it. Regardless of your methodology, research and hard work are crucial when deciding how to invest your money.
Benjamin Graham’s philosophy and approach to investing spawned many other great investors who followed in his footsteps. During his time at Columbia University, he taught, inspired and later employed the next person on our list of famous investors.
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|“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”|
Widely regarded as the most successful investor of all time, the next of our famous investors, Warren Buffett has a net worth of over $110 billion, making him the fifth wealthiest person in the world.
Like Graham before him, Warren Buffett pays particular attention to a company’s real value rather than relying on what the market says about it. Before investing in a company he scrutinises its fundamentals, establishes whether the company is good at generating earnings and establishes if it is under-priced.
In 1962, Buffett began buying stock in a textile company called Berkshire Hathaway and in 1964 aggressively increased his position, taking control of the business.
He soon expanded the company into insurance and other investments and, today, Berkshire Hathaway owns many companies in their entirety, including GEICO, as well as significant minority holdings in other public companies, such as Kraft Heinz Company (26.7%), American Express (18.8%), the Coca-Cola Company (9.32%) and Bank of America (11.9%).
Between 1965 and 2021, Berkshire Hathaway recorded a compounded annual gain of 20.1%, almost double that of the S&P 500 over the same time period.
One of Buffett’s many famous quotes is “be fearful when others are greedy, and greedy when others are fearful.” This illustrates two aspects of his investing philosophy.
Firstly, he is on the lookout for opportunities provided to him by market sentiment. For example, in the wake of the 2008 financial crisis, when most investors were fleeing the market, Buffett pounced and quickly bought significant stakes in high quality companies like Goldman Sachs, Bank of America, Mars and Dow Chemicals. He is reputed to have made more than $10 billion just from the investments he made during that time.
Secondly, Buffett does his own analysis, comes to his own conclusion and is not afraid to put his money behind his decision - even when everyone else is heading in the opposite direction. In other words, he is not afraid to be a contrarian investor.
What Can We Learn from Warren Buffett?
Similar lessons can be drawn from Buffett as Graham, with both valuing exhaustive research before any investment.
Furthermore, Buffett is famous for staying within his self-described “circle of competence”. In other words, he sticks to what he knows and does not invest in companies which he does not understand well, having once quipped: “Risk comes from not knowing what you're doing”.
This is definitely very wise advice from one of the most famous investors ever. The financial markets are complex and before investing your money into anything, you should do your research and ensure that you fully comprehend the risks involved.
|“I’m only rich because I know when I’m wrong”|
The next on our list of famous investors, is another name which is likely to be familiar to most, the legendary hedge fund manager George Soros.
In 1970, Soros founded Soros Fund Management, advising the Quantum Fund which achieved an average annual return of 30% between 1970 and 2000.
Soros’ most famous moment came in September 1992. After recognising that the British pound was overvalued versus the German mark, Soros began building short positions in the British pound, amassing a position worth $10 billion.
On 17 September 1992, the pound fell 15% against the mark. Soros’ short position earned him an estimated $1 billion and the nickname “the man who broke the Bank of England”.
Whereas Warren Buffett’s analysis is driven by the fundamentals of individual companies, Soros’ approach is driven by ‘macro’ factors, by the performance of whole sectors or entire economies. As such, his investments tend to be made into currencies, commodities or bonds.
Furthermore, whereas traditional economists believe in “rational markets” and “fair” asset prices, Soros’ investment philosophy is based on something he named reflexivity. He believes that (a) individual investments are made by fallible humans and that (b) every investment affects the psychology of other investors and entire markets.
Believing in reflexivity means believing that market prices frequently get too bullish or too bearish. Soros scans the markets for opportunities driven by reflexivity.
What Can We Learn from George Soros?
So, what investing lessons can we take from the third of our famous investors?
The first is the importance of analysing the wider economy. The economic environment affects all companies operating within it, as well as currencies, commodities and bonds.
Secondly, his position on the British pound in 1992 shows that Soros is not afraid to back his convictions with highly leveraged positions in an attempt to win as big as possible. Whilst it is not necessarily recommendable for you to start taking highly leveraged positions in the market, we can take something away from this.
When investing, you shouldn’t feel compelled to simply follow the crowd. Do your own research and, if you identify an opportunity, don’t necessarily be put off if the market is telling you something different.
If you are an aspiring investor looking for inspiration, hopefully this article has provided some for you, as well as some important lessons to consider.
The 3 famous investors listed above all illustrate one important principle - they are constantly learning and looking for new information. If there is one thing that you take away from this article, it should be that success does not happen overnight. Every investor on this list achieved their success through hard work, practise and persistence.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.