Great Learnings From Great Investors

5 min read

It’s no secret that investing is not straightforward. Becoming an ultra successful financial investor is not everyone’s cup of tea. It requires a great amount of patience, wisdom, and foresightedness.

And to have all these qualities in one single person is a rare condition, but few of the great investors in the world were able to ace this exciting world of finance. 

How did they do it? What steps did they follow? How did they come to know what to do and when? 

Previously we have covered the lessons that every successful investor follows and in today’s post we are going to talk about some of the top investors and the advice they have for us. 

  1. Benjamin Graham:

Benjamin Graham – the legendary investor, economist, and professor. Known as the father of value investing, he wrote two very popular books:  “Security Analysis” and “The Intelligent Investor”.

Tips to learn from Graham :

Look for intrinsic value, not market price:

In value investing, the main rule is to look at the intrinsic value of the firm. If the intrinsic value is lower than the market value, an investor should hold the stock until a mean reversion. The mean reversion is where the market price and intrinsic prices converge.

To avoid buying the stock or selling at the wrong time, always look at the intrinsic value not only the market price.

Don’t follow the herd:

Investors are human beings and humans are by nature emotionally driven, and are always willing to buy or sell a stock at prices which everyone follows. Due to this, the second popular tip Graham has is to avoid the herd or crowd. Since the market moves often and wide, diligent investors will be able to buy and sell smartly if they do fundamental research right. 

Be aware of your investment personality:

Benjamin Graham urges investors to introspect and be aware of the type of investor personality category he or she belongs to. According to Benjamin Graham, investors basically belong to either of two categories: “enterprising investor” or “defensive investor”. 

The enterprising investor will invest in stocks while defensive or cautious investors will opt for investment in index funds. Graham also differentiates between an investor and a speculator; the former views his stocks as part of business while the latter views it as an expensive paper. One should have the ability to realize which type of investor they are.

  1. Warren Buffett:

Warren Buffett is perhaps the most famous investor in the world (with a net worth of $101 billion) and has made a fortune through his investments. Buffett’s investment style is similar to Benjamin Graham, as he was a student of Graham’s. He focuses on long term value investing.

Tips to learn from Buffet:

Invest in yourself:

Buffett states that the best investment a person can make is in their own abilities, as everyone has their own set of unique qualities, which no one can take away from you.

Since most people won’t be making the majority of their money from the market,one should always have a back up plan. It’s essential in developing skills to advance personal careers. Buffett himself invested in a course to improve his public speaking skills, which helped him sell stocks when he was very young.

Understand before you invest:

The second tip is to invest only in companies that you can understand. Buffett suggests that before purchasing a stock, an investor should understand the main drivers of the business and how the business generates profit. If the business model of a company is too complicated or if an accurate prediction is needed to decide on whether the business is a good buy, an investor should look for another investment.

Buy to Hold:

Buffett believes in the buy and hold policy. In value investing, if an investor purchases an undervalued stock, the stock price will eventually increase. If the company is exceptional, then the stock value will increase exponentially as the investor holds onto the stock longer.

  1. Peter Lynch:

Peter Lynch is one of the most successful investors in the world (with a net worth of $450 million), former mutual fund manager at Fidelity Investments and a philanthropist. 

During his tenure as a manager of Magellan Fund, he made it the best-performing mutual fund in the world.

Tips to learn from Lynch:

Proper research is important:

It is important as an investor to look beyond what is visible to the eye. Promising stock ideas are available and visible, but there are other companies working to help those stocks rise. For eg., if you see a successful stock from a particular company in the market, it is visible to everyone. Wise Investors should go beyond to see the other companies and factors responsible for helping the stock become successful – investing in them can prove to be beneficial. 

Consider Mutual Funds:

Mutual Funds are a great alternative when it comes to investments. Peter Lynch once said, “Equity Mutual Funds are the perfect solution for people who want to own stocks without doing their own research.” Maybe you are one of those investors who don’t have the time or interest to do your own research about a company before investing in stocks, in that case mutual funds can be your savior.

Expect losses:

As an investor, you should never expect only success. Losses are bound to come your way. Peter Lynch once said,” in this business if you’re good, you’re right six times out of ten. You are never going to be right nine times out of ten”. Losses do not mean you are a bad investor, this is something which is bound to happen.

Buy what you know:

If you have been following Peter Lynch, you would be aware that he made Buffet’s statement, his mantra, i.e. to invest only in what you understand.

He sternly believes that investors can invest well if they are aware of the company, its business model and its fundamentals.

  1. Mogul Rakesh Jhunjhunwala:

Rakesh Jhunjhunwala is an Indian chartered Accountant, investor and trader. He is often referred to as India’s Warren Buffet and the Dalal Street Mogul. He is the 48th richest person in India (with a net worth around $5.8 billion) and is the founder of the company Rare Enterprises, an asset management firm.

Tips to learn from Jhunjhunwala:

Long-term Investments:

A firm believer of long-term investments, Mr Rakesh once said that it is important to give investments time to mature. Picking good funds or stocks will not be sufficient or good enough – if you don’t hold them for a long time. He says that holding Equity Mutual Funds is also a good investment to make. 

Avoid Emotional Investments:

He rightly says that emotional investments are a sure way to make a loss in the stock markets. Emotional investments include panic-buying during a recession or buying too much when the market is doing well. He says that selling during a recession will only cost loss and letting greed drive you to buy more when the markets are doing well can cause you to buy too much. 

Never depend only on historical data:

 Mr Jhunjhunwala says that you should never depend only on data from the past to make choices about the present. It is important to understand the market completely and make a choice. When one depends only on historical data, it is possible emotions and irrational thinking may play a role. One should not expect the past to repeat itself since the stock markets are very sensitive to various areas like the Economy, buying methods, etc.

Historical data can lead to sticking to non-performing investments which will keep you hoping that the best is yet to come. 

  1. Ray Dalio:

Dalio is a billionaire hedge fund manager and co-chief investment officer and founder of Bridgewater Associates. He is a realist, and he’s vocal about the challenges amateur investors face.

Tips to learn from Dalio:

Diversify:

Diversification spreads out your risk across multiple assets. It’s the practical application of not putting all your eggs in one basket.

Diversification reduces your dependence on the performance of any one security. And when it’s done right, diversification also protects you from the extremes of market volatility.

Dalio recommends diversifying across industries, asset classes, and even currencies.

Take risk:

Dalio whose first bought share was of $5/ share, which was a bankrupt airline but earned triple of the investment for Dalio. He deeply respects the inherent risks of stock market investing. He recommends managing that risk through diversification.

The past doesn’t guarantee future performance:

The price of any investment should represent that investment’s ability to create value in the future. Unfortunately, the stock market doesn’t always work that way. When investors get excited about a sector or company, stock prices rise. That investor excitement and the resulting price increase may or may not be accompanied by an improvement in underlying fundamentals.

To sum up, these are all the learnings, beliefs, and philosophies of the all-time great investors. Market is a field full of learnings not only from the market experts but also from our peers and best of these come from the investment of time and experience over the years. To make your first (or next) investment using the latest research tools, advisory and technology, sign up for your ShareIndia account here

Disclaimer: Any Advice or information in the post is a general advice for education purpose only and is not responsible for generating any trading strategy for anyone, please do not trade or invest based solely on this information.

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