Five lessons from five great investors

You often hear private investors describe themselves as followers of this or that famous investor.
 
(Often it’s whatever investor has been doing well most recently, but that’s a topic – or rant – for another day.)
 
Some pundits warn against us having models. Develop your own method, they say. Adopt a good investing process, and focus on the numbers. Keep personality out of it.
 
Not me though.
 
After nearly two decades at the task, I’ve come to believe investing is as much art as science – and very possibly more so.
 
I’ve also observed that it’s the investors who know more than a modicum of market history and who’ve read at least a few of the greats that tend to do better.
 
Few things get messy quickly like a newbie stock picker with a share screen and some target ratios. If investing were that simple, we’d all be chatting in a bar in the Caribbean.

Five go investing

No, just like painters and composers first become thoroughly au fait with the efforts of those who went before them, I think it’s wise to study how some of the best investors ever approached and beat the markets.
 
Where I do draw the line is when people become devoted to only one famous stock picker – more like cult followers than curious minds.
 
“I’m a Warren Buffett disciple through and through!” they’ll tell you. “That’s why I would never buy shares in a technology company.”
 
Meanwhile Warren Buffett himself is still reading everything he can, developing his craft, and has recently been buying shares in technology companies!
 
We too should keep learning and evolving, just like Buffett. And when it comes to the Old Masters of investing, I believe this means looking for tips from all of them. This way we can develop a toolbox of investing techniques.
 
So here are five lessons out of the mouths of the best, with a few comments from me.
 
Benjamin Graham: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
 
If I was asked to put a single investing quote into a space probe to send to faraway civilizations to explain the madcap business we call the stock market, I’d choose this aphorism from the father of value investing. All kinds of things move share prices from day-to-day or even year-to-year. But over the long-term, hype fades, bogus companies are found out, and share prices follow earnings.

Peter Lynch: “Twenty years in this business convinces me that any normal person using the customary three percent of the brain can pick stocks as well as, if not better, than the average Wall Street expert.”
 
A superb author as well as a market-trouncing fund manager, the biggest lesson I took from Peter Lynch as a young investor was not to be scared off attempting to pick stocks. It’s true a professional fund manager has more time, resources, and possibly brainpower than you or me. But they also have constraints – careers to keep hold of, and billions to invest – and they may miss things you see at your own work or shopping for your kids.

Nick Train: “I had to teach myself to be bullish. But I promise you, as soon as I started looking on the bright side not only did my investment performance begin to improve, but I felt and looked younger too.”
 
The UK fund manager behind the success of the Finsbury Growth & Income Trust and most of the funds run by his own Lindsell Train house has emerged as one of the great talents of his generation. Yet his investing style is incredibly simple: buy the best companies, presume they’ll exploit growing markets, and hold them. You never hear train fretting about trade wars, Brexit politics, or over-valued companies. While the media and bulletin boards are full of noise, he urges us to remember those long-term stock market graphs that go up and to the right. That’s why we’re investing, after all.

Anthony Bolton: “Another type of situation I like are companies with asymmetric pay-offs – stocks where you might make a lot of money but you can be confident you won’t lose a lot.”
 
Bolton was the Nick Train or Neil Woodford of his day – a brilliant manager who won a legion of fans through many years of multiplying their money. What I most admire in Bolton’s style is how nimble he was, and how free of dogma. Read his underrated book Against The Tide, and you’ll get an insight into how properly managing a portfolio isn’t about a single brilliant flash of insight or a heroic contrarian trade but rather a steady accumulation of decisions, adjustments, and risk-versus-reward judgements.

David Gardner: “Let your winners run. High.”
 
Let’s end with a career-defining statement of intent from one of the founders of The Motley Fool. David has racked up a brilliant record with his unique way of looking at companies and their stocks, but his urging that we aim to keep hold of our best performing shares is something investors of most stripes would benefit from. Hanging on to a losing share that then falls 50% is one thing, but selling a share that goes on to quintuple – or more – is another level of pain. If Foolish investing is about finding the greatest companies, it surely makes sense to own them for as long as they stay that way.