1- John Jack Bogle - Investment Style
In simple terms, Jack Bogle's investing philosophy advocates capturing
market returns by investing in broad-based index mutual funds that are
characterized as no-load, low-cost, low-turnover and passively managed. He
has consistently recommended that individual investors focus on the following
themes:
- The primacy of investing simplicity
- Minimizing investment-related costs and expenses
- The productive economics of a long-term investment
horizon
- A reliance on rational analysis and an avoidance of
emotions in the investment decision-making process
- The universality of index investing as an appropriate
strategy for individual investors
2- Warren Buffett - Investment Style
Warren Buffett's investing style of discipline, patience and value has
consistently outperformed the market for decades.
John Train, author of "The Money Masters"(1980), provides us with a
succinct description of Buffett's investment approach: "The essence
of Warren's thinking is that the business world is divided into a tiny
number of wonderful businesses – well worth investing in at a price – and a
large number of bad or mediocre businesses that are not attractive as long-term
investments. Most of the time, most businesses are not worth what they are
selling for, but on rare occasions the wonderful businesses are almost given
away. When that happens, buy boldly, paying no attention to current gloomy
economic and stock market forecasts."
Buffett's criteria for "wonderful businesses" include, among others,
the following:
- They have a good return on capital without a lot of
debt.
- They are understandable.
- They see their profits in cash flow.
- They have strong franchises and, therefore,
freedom to price.
- They don't take a genius to run.
- Their earnings are predictable.
- The management is owner-oriented.
3- David Dreman - Investment Style
It
is reported that Dreman came to contrarian investing the hard way. In 1969,
Dreman, a junior analyst at the time, was following the crowd as the shares of
companies with negligible earnings skyrocketed. He is quoted as saying, "I
invested in the stocks du jour and lost 75% of my net worth." As a result
of that painful lesson of following the herd, he became fascinated with how
psychology affects investor behavior and became a contrarian investor.
In an interview for Kiplinger's Personal Finance Magazine in
2001he explained his approach: "I buy stocks when they are battered. I am
strict with my discipline. I always buy stocks with low price-earnings
ratios, low price-to-book value ratios and higher-than-average yield.
Academic studies have shown that a strategy of buying out-of-favor stocks with
low P/E, price-to-book and price-to-cash flow ratios outperforms the
market pretty consistently over long periods of time."
4- Philip Fisher - Investment Style
Fisher achieved an
excellent record during his 70 plus years of money management by investing in
well-managed, high-quality growth companies, which he held for the long term.
For example, he bought Motorola stock in 1955 and didn't sell it until his
death in 2004.
His famous "fifteen points to look for in a common stock" were
divided up between two categories: management's qualities and the
characteristics of the business.
Important qualities for management included
integrity, conservative accounting, accessibility and good long-term outlook,
openness to change, excellent financial controls, and good personnel
policies.
Important business
characteristics would include a growth orientation, high profit margins,
high return on capital, a commitment to research and development, superior
sales organization, leading industry position and proprietary products or services.
Philip Fisher searched far and wide for information on a company. A seemingly
simplistic tool, what he called "scuttlebutt," or the "business
grapevine," was his technique of choice.
He devotes a considerable amount of commentary to this topic in "Common Stocks
And Uncommon Profits". He was superb at networking and used all the
contacts he could muster to gather information and perspective on a company. He
considered this method of researching a company to be extremely valuable.
5- Benjamin Graham- Investment Style
Morningstar's online
Interactive Classroom carries this anecdote about the results of Ben Graham's
investing style:
"In 1984, Warren Buffet returned to Columbia to give a speech
commemorating the fiftieth anniversary of the publication of "Security
Analysis". During that speech, he presented his own investment record as
well as those of Ruane, Knapp, and Schloss [other successful investment
managers who were students of Graham at Columbia]. In short, each of these
men posted investment results that blew away the returns of the overall market.
Buffett noted that each of the portfolios varied greatly in the number and type
of stocks, but what did not vary was the managers' adherence to Graham's
investment principles."
It is difficult to
encapsulate Benjamin Graham's investing style in a few sentences or paragraphs.
Readers are strongly urged to refer to his "The Intelligent Investor"
to obtain a more thorough understanding of his investment principles.
In brief, the essence of Graham's value investing is that any investment should
be worth substantially more than an investor has to pay for it. He believed in
thorough analysis, which we would call fundamental analysis. He sought out
companies with strong balance sheets, or those with little debt, above-average
profit margins, and ample cash flow.
He coined the phrase "margin of safety" to explain his common-sense
formula that seeks out undervalued companies whose stock prices are temporarily
down, but whose fundamentals, for the long run, are sound.
The margin of safety
on any investment is the difference between its purchase price and
its intrinsic value. The larger this difference is (purchase price below
intrinsic), the more attractive the investment - both from a safety and return
perspective - becomes. The investment community commonly refers to these
circumstances as low value multiple stocks (P/E, P/B, P/S).
Graham also believed
that market valuations (stock prices) are often wrong. He used his famous
"Mr. Market" parable to highlight a simple truth: stock prices will
fluctuate substantially in value. His philosophy was that this feature of the
market offers smart investors "an opportunity to buy wisely when prices
fall sharply and to sell wisely when they advance a great deal."
6- William H Gross- Investment Style
In an October, 2005, commentary piece, MarketThoughts.com
editor, Henry K. To wrote that Bill Gross "believes that successful
investment in the long-run (whether in bonds or equities) rests on two
foundations: the ability to formulate and articulate a secular [long-term]
outlook and having the correct structural composition within one's portfolio
over time." Gross describes these foundations as having a three- to
five-year forecast that forces an investor to think long term and to avoid the
destructive "emotional whipsaws of fear and greed." He clearly states
that "such emotions can convince any investor or management firm to do
exactly the wrong thing during irrational periods in the market."Gross
argues that "those who fail to recognize the structural elements of the
investment equation [asset allocation, diversification, risk-return measurements and investing costs] will leave far more
chips on the table for other more astute investors to scoop up than they could
ever imagine."
7- Carl Ichan- Investment Style
Renowned investor
Wilbur Ross, Icahn's longtime friend and frequent adversary, referred
to Icahn in a May 2007 Fortune Magazine article as
"the most competitive person I know … he's especially good at terrorizing
people and wearing down their defenses." For many corporate executives,
that pretty much sums up Carl Icahn's business and investing style.
Icahn's strategy
involves targeting a company he thinks is poorly run and whose stock price is
trading below value. He thrives when the markets are on a downtrend; when
everyone else is selling, he starts buying. He accumulates enough of an
ownership position to lobby for a position on the company's board of directors.
Usually his first demand is to dump the CEO and, oftentimes, to consider
breaking up the company into separate parts and selling them off. Wall Street
professionals say that most of the time he is successful because he's
intimidating and relentless.
He's viewed as such a surefire moneymaker that
investment managers typically start buying up the company's stock, which,
whether Icahn is successful or not, leaves him with healthy stock
price gains.
A classic example of
this phenomenon is Icahn's push in 2006 to oust CEO Richard Parsons
and break up Time Warner. It didn't work out that way. When Icahn was
asked about his failed attempt in a February 2007 Time Magazine interview, Icahn said
"… Dick Parsons agreed to do what we wanted most - a $20
billion buyback of the stock. He did what he promised, and the stock
is up 30%. That helps shareholders. Our [hedge] fund made $250 million. It's a
nice way to lose."
So how
has Icahn's investment style worked out? A 2007 Fortune
Magazine profile reported "in its less-than-three-year existence,
the Icahn Partners hedge fund has posted annualized gains
of 40%; after fees, investors pocketed 28%. That 40% gain trounces the S&P
500's return of around 13%, as well as the 12% for all hedge funds calculated
by the HedgeFund.net research firm."
8- Jesse L Livermore - Investment Style
Jesse
Livermore had no formal education or stock trading experience. He was a
self-made man who learned from his winners as well as his losers. It was these
successes and failures that helped cement trading ideas that can still be found
throughout the market today.
Some of the major principles that he employed
include:
- Money is not made in day trading on price
fluctuations. Livermore emphasized the importance of focusing on
markets as a whole, rather than on individual stocks. He noted that
greater success comes from determining the direction of the overall market
than attempting to pick the direction of an individual stock without
concern for market direction.
- Adopt a buy-and-hold strategy in a bull
market and sell when it loses momentum. Livermore always
had an exit strategy in place.
- Study the fundamentals of a company, the market and the
economy. Livermore separated successful investors from
unsuccessful investors by the level of effort they put into investing.
- Investors who focus on the short term eventually lose
their capital.
- Ignore insider information; make your own
independent analysis. Livermore was very careful about where he
got his information and recommended using multiple sources.
- Embrace change in adapting investing strategies to
evolving market conditions.
9- Peter Lynch - Investment Style
Often described as a
"chameleon," Peter Lynch adapted to whatever investment style worked
at the time. It is said that his work schedule, the equivalent of what we would
call today "24/7," did not have a beginning and an end. He talked to
company executives, investment managers, industry experts and analysts around
the clock.
Apart from this
punishing work ethic, Lynch did consistently apply a set of eight fundamental
principles to his stock selection process. According to an article by Kaushal
Majmudar, a CFA at The Ridgewood Group, Lynch shares his checklist with the
audience at an investment conference in New York in 2005:
- Know what you own.
- It's futile to predict the economy and interest rates.
- You have plenty of time to identify and recognize
exceptional companies.
- Avoid long shots.
- Good management is very important - buy good
businesses.
- Be flexible and humble, and learn from mistakes.
- Before you make a purchase, you should be able to
explain why you're buying.
- There's always something to worry about.
In picking stocks (good
companies), Peter Lynch stuck to what he knew and/or could easily understand.
That was a core position for him. He also dedicated himself to a level of due
diligence and stock research that left few stones unturned. He shut out
market noise and concentrated on a company's fundamentals, using
a bottom-up approach. He only invested for the long run and paid little
attention to short-term market fluctuations.
10- George Soros - Investment Style
George Soros was a
master at translating broad-brush economic trends into highly leveraged,
killer plays in bonds and currencies. As an investor, Soros was a
short-term speculator, making huge bets on the directions of financial
markets. He believed that financial markets can best be described as chaotic.
The prices of securities and currencies depend on human beings, or the traders
- both professional and non-professional - who buy and sell these assets. These
persons often act out based on emotion, rather than logical considerations.
He also believed that market participants influenced one another and moved in
herds. He said that most of the time he moved with the herd, but always watched
for an opportunity to get out in front and "make a killing." How
could he tell when the time was right? Soros has said that he would have an
instinctive physical reaction about when to buy and sell, making his strategy a
difficult model to emulate.
When he fully retired in 2000, he had spent almost 20 years speculating with
billions of other people's money, making him - and them - very wealthy through
his highly successful Quantum Fund. He made some mistakes along the way, but
his net results made him one of the world's wealthiest investors in history.
Note: The list is random and not ranked as per greatness or anything.
