Unlike your typical amateur trader who "goes from the gut," the following four legendary investors made their mark not through dumb luck, but with idiosyncratic, crystal-clear strategies. While their strategies are wildly divergent, encompassing a wide array of attitudes, practices, and general philosophies towards how to play the market, they've all been wildly successful.
In each case, you have an investor who's made a whole ton o' money practicing what they preach, and when you look at what they've had to say about trading, Wall Street, and capitalism itself, you get four distinct views on what it means to be a successful investor.
The “Oracle of Omaha” is probably the most famous investor in the world, and the most well-known practitioner of the value investing strategy popularized by Benjamin Graham. In the Buffett value investing, one looks for undervalued investments and capitalizes on them.
For instance, Buffett famously invested heavily in American Express after noticing how many people used the cards. He believed this meant that there was still value in the company, no matter what everyon else thought.
Buffett has inauspicious beginnings, making his first investment at age 11, and then working for a series of investment firms in Omaha, Nebraska before making his landmark purchase of Berkshire Hathaway Inc. ($BRKA) in 1970.
Buffett is famous for looking long term when investing, and shunning quick trades. He especially has made a point of avoiding IPOs, saying its best to look at companies that have a track record and will be profitable in 10 years. He also tends to like companies with little debt, and earnings generated from shareholder equity. In short, he likes it traditional, and it seems to be working out just fine for him.
Look for hidden value and invest for the long-term. Long-term, as in, indefinitely.
– Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
– It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
– When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.
– Price is what you pay. Value is what you get.
If Warren Buffett is the gentle swan of investing, Carl Icahn is the lion with a head-mounted laser. While value investors like Buffett look to nurture and invest long-term in a company, Icahn looks to see what he can extract out of them. And with a net worth of over $20 billion, it’s hard to argue he hasn’t found success.
Icahn is known for his brash personality, take-no-prisoners attitude, and lack of tact. And as an investor, that brashness shines through. Icahn is probably most famous for his hostile takeover of TWA in 1985 and subsequent asset stripping of the company, which solidified his reputation as a corporate raider. Though he's not as involved as he once was, his protracted battle with Dell Inc ($DELL) CEO Micahel Dell over the future of that company showed that this old-school raider still has plenty of fight left in him.
Don’t be afraid of unpopular assets. Serve the shareholders. If you buy companies, don’t be afraid to restructure, and if it’s most profitable to do so, strip the assets and liquidate them.
– There is no corporate democracy and it's a sad, sad commentary on our country
– My investment philosophy, generally, with exceptions, is to buy something when no one wants it.
– You learn in this business: if you want a friend, get a dog.
Jim Chanos is a unique figure in investing. His fortune has been built on the “short sell” – that is, looking to bet against companies rather than on them. This is probably best exemplified in the fact that Chanos first made his name as a short seller at a firm called Kynikos – the Greek word for "cynic."
The most famous short sell Chanos has undertaken was probably his bet against Enron. He was one of the first people to pinpoint the energy company’s impending collapse, and shorted the stock considerably. When the stock plunged from $90 to under $1 in less than two years, Chanos made a fortune.
Since his prescience concerning the Enron debacle, investors have looked to Chanos to find out which company is next to crash and burn. His latest pick to short? Industrial equipment maker Caterpillar Inc. (CAT) . Chanos claims the Chinese construction bubble is about to burst, and when it does it's going to take construction-dependent companies with Caterpillar down.
It’s easier to find companies that are going to fail than companies that are going to succeed.
– In investing, you can be really right but temporarily quite wrong.
– We try to focus on businesses where something is going wrong
– Bubbles are best identified by credit excesses, not valuation excesses. And there's no bigger credit excess than in China.
You might not have heard of the “Warren Buffett of his generation,” and that’s how he likes it. Born in 1957, the Harvard Business School value graduate rarely gives interviews, and makes few public appearances. But Klarman’s work as an investor speaks volumes. Not just for his unconventional holdings, which favor underappreciated assets and complex derivatives, but because Klarman has had one of the more successful investment portfolios in America.
Klarman has built a $1.05 billion fortune by dogmatically epitomizing value investing strategy. He favors safe, long-term investments, much like Buffett, but to an even more conservative degree. His book, Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor has become a classic in the value investing genre.
Don’t overextend, and don’t take huge risks. Look for the “margin of safety” – the amount a stock’s price is below its intrinsic value – and invest in companies with the largest discrepancy.
– Investing is, in many ways, a zero-sum activity in which your returns above the market indices are derived from the mistakes, overreactions or inattention of others as much as from your own clever insights.
-When observing your competitors, your focus should be on their approach and process, not their results.
– Every security or asset is a "buy" at one price, a “hold” at a higher price, and a "sell" at some still higher price. Yet most investors in all asset classes love simplicity, rosy outlooks, and the prospect of smooth sailing. They prefer what is performing well to what has recently lagged, often regardless of price.