Learn from the masters
Take the road less traveled and look for hidden investment gems
Financial journalist William Green has written a great book, “Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life” (Simon and Schuster), based on his in-depth interviews with the world’s most successful investors. The book stands out because he probes beyond the field of investing to find out how they have succeeded in their lives generally.
This is especially interesting because some of those profiled experienced significant problems during their careers. There were many lessons to be learned from career setbacks.
As far as success in the markets goes, though, almost all the experts profiled touched on a common theme: that one of the most important factors was buying undervalued securities. Not all of the experts invested in equities. Many were successful by purchasing other investment vehicles. For example, Howard Marks specialized in depressed bonds and high-yield securities.
Another common theme is that most of the experts are “loners.” They spent a lot of time reading by themselves. This includes Warren Buffett and John Templeton. The most successful investors are not afraid of buying when others are selling, and vice versa. Many of these investors are avid game players. Many play bridge. Most of them emphasize the importance of understanding probability. Most think very long term. Buffett and his partner, Charlie Munger, believe that when they finally select a company, it’s a lifetime investment.
The book presents a variety of opinions about diversification. Some of the experts are confident about having a small number of securities in their portfolio, while others, such as Joel Greenblatt, emphasize the importance of having a large number.
I found the chapter about Templeton very instructive. He, George Soros and Buffett shared one invaluable characteristic: “the willingness to be lonely,” as Green puts it. They take positions that others don’t think are wise. “They have a conviction that a lot of people don’t have.”
When Templeton began his career, for example, the default wisdom of investment advisers was that Americans should invest exclusively in U.S. assets. Templeton
took a different approach. After graduating from Oxford, he traveled the world, gaining an informational edge over investors who lacked his insatiable curiosity.
One of the most important lessons from the book is the importance of patience. Too many investors monitor their portfolio value too frequently, making rash judgments based on price changes that don’t reflect long-term conditions.
In the first three or four months of 2020, when the stock market fell dramatically, some sold much or all of their equities at lower prices, and many of them have still not gone back into the market. In doing so, they missed a significant market rebound and now have a much lower allocation of equities.
Following Buffett’s philosophy, I sold no equities from my portfolio at that time, and I continued dollar-cost averaging because I expected that the market fall was a temporary condition. Most investment experts also did not sell early and have been rewarded.
Very few of the experts Green profiled depend on leverage for their performance.
Some who did have been hurt. Bill Miller, who had great success as chief investment officer of Legg Mason Capital Management, was burned badly in 2008 because of leverage. He has recovered, however, and is still widely admired.
You will find excellent investment and life advice from all of the other experts interviewed, including Jack Bogle, Peter Lynch, Ed Thorp, Will Danoff and many others.
One thing stands out: These experts have been successful because of continued hard work and courage in following their instincts, and by not being influenced by the crowd. They were willing to buy undervalued securities when everyone else was selling, and they knew when to take some profits.
You will learn a great deal about investing and life lessons from this book. Like me, you will probably also find it captivating. Once I started reading it, I read it from cover to cover.