Warren Buffett
He has been turned into the icon of the American Dream. With his humble demeanor and aw-shucks attitude, he buys quality business for less than they're worth, where the market dominance of the firm creates a "margin of safety" in the stock. His problem is that many of his investments are in declining industries, where he could have sold the businesses and reinvested in better firms (see Dairy Queen).
He learned investing from Ben Graham, who first wrote about this margin of safety. But over time, Warren evolved from buying decent companies for dirt cheap to buying great firms for a fair price. Fortunately for him, he is now the buyer of choice for closely-held businesses, which gives him the right of first refusal for deals inaccessible to most managers. Unfortunately, missteps like selling index puts near the market highs have slightly tarnished his sterling reputation.
Other than heading a large firm and his status the world's richest man for a time, what makes him so endearing? The public swoons over his image as a humble, down-to-earth man making simple buys that the average investor believes they can imitate. His main strategy, on its face, is quite simple, but 20% returns over 50+ years is by no accounts easy.
David Swensen
Next to Buffett, Swensen has one of the best reputations today. He has managed the Yale endowment since 1985, garnering compounded returns of 14.5% even after a 25% drop in the last fiscal year. He advocates passive buy and hold allocations in a retail investor's portfolio, going so far as to recommend his own lazy portfolio:
- 30% in Vanguard Total Stock Market Index (VTSMX)
- 20% in Vanguard REIT Index (VGSIX)
- 20% in Vanguard Total International Stock (VGTSX) or (15% inVDMIX and 5% in VEIEX)
- 15% in Vanguard Inflation Protected Securities (VIPSX)
- 15% in Vanguard Short Term Treasury Index (VFISX)
However, his success at Yale doesn't lie in passive buy and hold. He is famous for moving beyond normal stock and bond allocations into alternative investments, including hedge funds, private equity, timber, commodities, etc. He may still buy and hold his investments, but he has access to the best alpha-producing managers in the world, and takes full advantage of their availability.
He argues that average investors should not try to pick investments, as they are hopelessly outclassed by institutions with the best analytics, talent and strategies.
George Soros
In short, his strategy is to ride massive global trends, and then capitalize on his belief in Reflexivity. Reflexivity is the concept that faulty belief systems create unsustainable trends. When the belief pervades the great majority of market participants, a low risk trade can be made in the opposite direction of the trend.
He is interesting in that his great desire is to be remembered not as an investor, but as a philosopher and philanthropist, donating funds to encourage democracy in eastern Europe, and proclaiming his theory of Reflexivity.
He is most famous for "breaking" the Bank of England, betting against the pound because of a faulty policy. His other most notable accomplishment is founding (with Jim Rogers) and managing the Quantum fund to average returns of 30% from 1970-2000. His strategies are much harder to imitate than Buffett's, as he bets on currencies, stocks and bonds all over the world, requiring a diverse economic acumen far beyond any normal investment manager.
William O'Neill
He is the founder of Investor's Business Daily, and one of the first to marry fundamental and technical analysis into the same stockpicking strategy. He advocates buying newer stocks with high earnings growth and low debt, but only if they have leading price action during a bull market. His most valuable lesson is the maxim of cutting your losses at no more than 7-8%. He writes detailed selling rules for all possible scenarios because he learned firsthand that it's not the winnings that make a great investor, but knowing how to take a loss.
In order to be successful with his strategy, one must keep a watch list of suitable stocks, waiting for a stock to reach a buy point. This point is supposed to be the least risky price at which to buy. O'Neill's strategy is popular because it presents the possibility for large returns while limiting losses.
Richard Dennis
It is very understandable if you have not heard his name before. Dennis traded his account from a few hundred dollars to $200mm. He is famous for creating the "Turtle Traders," a group of trend-following traders that he taught from scratch to become successful investment managers. He would trade any asset classes, but created rigid technical buy and sell rules that he followed religiously, trading breakouts in the direction of the current market trend. While his technical strategy was fairly simple, it required discipline that was very difficult for most people. He himself suffered large losses when he diverged from his strategy.
Are you willing to backtest strategies and follow the proven ones even when they underperform the market, in exchange for fantastic returns in the long run? Learn from Richard Dennis.
Conclusion
Regardless of style, you can learn from each of the above investors. Each is a master of their own style, a style that fits their personality and strengths completely. Buffett could never follow Richard Dennis, and Swensen could not be a George Soros. If you find an investment style you are comfortable with, stick with it at all costs.
A word of caution, though. How much of your life are you willing to devote to investments? If you are not willing to live and breath the markets, don't even think about global macro. If your emotions get the best of you, stay away from Richard Dennis. The easiest to follow would be Swensen, who as a master asset allocator does not trade individual assets, but instead works to diversify and find the best managers.
Do you think it is possible to emulate the masters, or is it purely luck that has made them successful? Are there any other managers that you believe are better than those above? Can any average person become a great investor?
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