How To Invest In Shares
May 27, 2010
5. Learn From The Stock Market Greats
A great way of developing your own stock picking strategy is to base it on somebody else's successful technique. In this section we feature eight great investors whose investment philosophies could be used as a foundation for your stock market ventures.
Benjamin Graham is widely regarded as the Father of Value Investing. His books, Security Analysis and The Intelligent Investor, pioneered the concept of making money through 'undervalued' shares. Co-authored with David Dodd and published in 1934, Security Analysis is an epic tome, describing in detail how to analyse a company's financial statements. However, penned in 1949, The Intelligent Investor is the book Graham is most well known for.
You could say Philip Fisher was the stock market's first 'tech investor'. Originally published in 1958, his book, Common Stocks and Uncommon Profits, broke new ground in explaining how investors could judge fast growing, innovative companies. Fisher famously used his techniques to pinpoint the likes of Motorola (NYSE: MOT) and Texas Instruments (NYSE: TXN) in the mid-1950s, two stocks that registered substantial gains over the following decades.
Warren Buffett is arguably the world's greatest investor. His $40bn fortune certainly makes him one of the world's richest men. But alongside the enormous wealth, Buffett's reputation is enhanced by the annual letters he writes to the shareholders of his investment vehicle, Berkshire Hathaway (NYSE: BRK.A). Freely available to all, the shareholder letters outline the investment strategy that has served him well for over 40 years.
Although professional fund managers tend to have a poor reputation, a few do stand out. Peter Lynch ran the Fidelity Magellan Fund between 1977 and 1990. Anybody putting in $1,000 when Lynch took control would have seen the investment balloon to $28,000 by the time he retired. The techniques that helped Lynch record the near 30% per annum return are encapsulated in his three books, the best of which is probably One Up On Wall Street.
Jim Slater is probably the UK's most well known private investor. Published in 1992, his book The Zulu Principle was the first that presented British investors with a specific stock market strategy. Alongside refinements published in the follow-up Beyond The Zulu Principle, Slater also devised Really Essential Financial Statistics (REFS), a publication that helps investors locate suitable investment opportunities.
By and large, professional fund managers tend to have a poor reputation. However, a few do stand out. Bill Miller is certainly among the industry's upper echelons. After Miller took charge of US mutual fund Legg Mason Value Trust in 1990 and has beaten the S&P 500 for each of the last fifteen years. His methods are explained in the book The Man Who Beats The S&P: Investing With Bill Miller.
John Maynard Keynes
Most people recognise John Maynard Keynes for his contributions to economic theory, most notably the book The General Theory of Employment, Interest and Money. Less well known is that, in addition to effectively creating the subject of macroeconomics, Keynes became a very capable stock market investor. Keynes's prowess is shown by his performance at King's College, Cambridge. Between 1927 and 1946, a time when the UK market was broadly flat, Keynes managed to generate a 13% annual return for the College's Chest Fund.
Legendary stock picker Sir John Templeton was first to spot the potential of 'emerging markets'. Having seen it all, done it all, investors will always find solace with Sir John's open-minded and contrarian beliefs. Although Sir John died in 2008, his record and thoughts have survived the test of time. Anybody who'd invested $10,000 in the Templeton Growth fund at its inception in 1954 would have seen it turn into $4m by 1992.