Content provided by Sierra Morris-Fuchs, CLS Investment Research Analyst
As someone who studies the market on a daily basis, to find securities poised to produce high returns over time, it is important not only to educate on the present, but also the past. Who better to look to for investment lessons than the investment greats?
“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”
Commonly thought of as the ‘father of value investing,’ Benjamin Graham became well known in the 1920s for his idea that a business has an intrinsic value that can be calculated to determine its true worth – independent of its stocks price. He is also the author of one the most respected value investing books of all time, The Intelligent Investor.
What has Benjamin Graham taught us?
Benjamin Graham taught us a systematic way of screening companies, based on a handful of factors, to find those stocks with under-valued characteristics. This fundamental analysis includes looking for firms with little leverage, strong balance sheets, high cash flow, and above-average profit margins. He also taught us to ignore the fickle fluctuations of Mr. Market on a day-to-day basis, and instead to approach investing in a businesslike manner.
Sir John Templeton
“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
John Templeton became a “sir” when he was knighted in 1987 by Queen Elizabeth II for his philanthropy. But he first became famous during the Great Depression of the 1930s, for purchasing 100 shares of each stock trading under $1 a share on the NYSE (104 companies) and ultimately realizing a vast profit when domestic industry picked up as a result of World War II. Later, he ran some of the world’s biggest and most successful investment mutual funds, one being the Templeton Growth Fund.
What has Sir John Templeton taught us?
Templeton taught us to mix the searching-for-bargains approach of value investing with expanding research beyond one’s home country. At a time when most investors would never consider foreign investments, he was an advocate of investing globally as it opened up many more opportunities to find a good deal.
“The success of contrarian strategies requires you at times to go against gut reactions, the prevailing beliefs in the marketplace, and the experts you respect.”
David Dreman is best known as a contrarian value and behavioral finance investor. Dreman has said he did not embrace contrarian value investing from the start, rather it was a tough lesson learned. In 1969, while he was still working at the junior level, he invested his money in a handful of stocks the majority said were ‘hot,’ but later came to lose 75% of his net worth on these. Ouch.
What has David Dreman taught us?
Dreman has taught us that going against the grain can be profitable. His research shows the market has a way of overvaluing good companies and undervaluing those with less-than-stellar outlooks. Those companies in the lowest quintile of valuations have been beaten up to the point that positive surprises have a larger impact, total return on average has historically been higher, and they have outperformed their expensive peers even in past bear market situations.
“Be fearful when others are greedy and greedy only when others are fearful.”
Most people are pretty familiar with the ‘Oracle of Omaha,’ and his investment and personal philosophies. No list of value investors would be complete without Warren Buffett. Hailing from our humble city, Buffet has gone on to become one of the world’s wealthiest and most influential individuals through his practice of value investing, all while maintaining an unpretentious lifestyle.
What has Warren Buffett taught us?
Buffett, who was a scholar of Benjamin Graham, expanded on his work. He taught us that in addition to analyzing the numbers of a business, it is important to fully analyze and trust the current management and recognize a sustainable competitive advantage, which he coined a ‘moat.’ In addition, Buffet instructed all investors to make sure they understand their investments and avoid those with confusing characteristics.
“A great business at a fair price is superior to a fair business at a great price.”
Charlie Munger is often known as Warren Buffett’s right-hand-man, although he deserves his name on this list as much as any other. Munger has played a substantial role in influencing the investment style of Buffett’s company, Berkshire Hathaway. In his personal life, Munger is well-known as a generous philanthropist.
What has Charlie Munger taught us?
Charlie Munger taught us that ethics are essential, and a business without high ethical standards will, at some point, fail. A follower of a similar investment philosophy to Buffett and Benjamin Graham, Munger further refined the value investing model and showed us that this model not only includes companies that are dirt cheap, but, as his quote suggests, excellent companies priced at a moderate discount.