Wall Street Gurus: Meet the Pros
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Also known as the Oracle of Omaha, Nebraska. Warren Buffett is probably the most known of Wall Street’s magnates now a days. Warren started his love for business since he was little, buying his first investment in stocks at the early age of 11. Buffett then applied to Harvard University to finish his graduate studies, but his application was declined forcing him to enter Columbia University where he later connected with his dear mentor Benjamin Graham, also called the father of value investing. Warren recalls Graham’s book “The Intelligent Investor”
Buffett is known for his “Buy and Hold” approach towards investments, he is notoriously known for his keen eye on valuation. Warren Buffett has always dedicated his time and efforts buying businesses not stocks, he looks for value where others give up, living by the standards of “Buy” low “Sell” high, in other words he would never pay more for a stock than it’s intrinsic value.
Benjamin Graham is known as “The father of value investing”. Benjamin Graham is also known for his two book publications that has shaped the life of many investors such as Warren Buffett these are: “Security Analysis” and The Intelligent Investor written alongside David Dodd. The majority of investors agree these books to be the best books every stock investor should own. Benjamin Graham believed nobody should pay more for a share than it’s worth, even though Graham’s style of investing is wide known it’s hard to summarize it in a few words. We urge you to read “The Intelligent Investor” by Benjamin Graham to get a more detailed overview on his styles.
See Also Our Article “ The Intelligent Investor’s Cheat Sheet”
Benjamin Graham is also famous for introducing the term “Mr. Market” if understood it could shape the way you see the stock market.
“Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly. “
Excerpt from “The Intelligent Investor” pg. 204-205
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Bill Miller is the portfolio manager for the Legg Masson Value trust, as a value investor he has demonstrated to beat the S&P 500 for 15 years between 1991 and 2005. Bill miller’s approach to value investing differs to Buffett’s where he diversifies his portfolio buying high P/E, low P/E, high price-to-book, and low price-to-book stocks, as opposed to Buffett’s approach.
During his peak years Miller grew his fund’s portfolio from $750 Million to $20 billion in 16 years, that is a remarkable 2,566% increase in value. In other words if you would’ve invested $10,000 in 1990 you would’ve growth your portfolio to $257,000 in 2006 making him a Wall Street Guru in our list.
Peter Lynch is another Icon on Wall Street, Lynch worked for Fidelity Investments and was in charge of managing the Fidelity Magellan Fund. Peter Lynch averaged a 29.2% return from 1977 to 1990, making it the highest return mutual fund during those years. Peter Lynch is considered a Growth Master Investor, teaching the principles of “Buying what you know”. He believed that if investors bought what they knew, they run a better chance than to buying new companies they knew nothing about.
A quick example would be: When you wake up every morning do you wash your teeth? if YES was your answer (we hope so) What brand of toothpaste you own? Why do you buy it? Would you change your brand because you saw a commercial of another? This gives you a quick start to where you should start looking according to Lynch.
Lynch believed individual investors had a significant advantage over Wall Street investing in Small-Cap stocks because there are so many that simply Wall Street doesn’t have the time to go over every single one of those. He believed in the importance of diversification as he held more than 1,000 stocks in his fund portfolio.
Lynch famous publications consist of:
“One Up On Wall Street” by Peter Lynch
“Beating the Street” by Peter Lynch
What we should retain from Peter Lynch:
- Invest in what you know
- Find hidden winners in Small-Cap stocks
William O’Neil is famous for his CANSLIM, approach of investing this made him one of the best stock broker performers in his company. O’Neil aimed to lose the least amount of money possible when investing; therefore he created a strategy for limiting losses. When buying stocks O’Neil uses a 8% stop loss and sells when the stock goes up 20% or if the stock doesn’t reach 20% within 3 months, he also suggests that if the stock rises more than 20% within 8 weeks he encourages investors to buy more of it.
O’Neil’s Approach to pick winners (CANSLIM):
C = Current quarterly earnings: The bigger the better
A = Annual earnings increases: Look for significant growth
N = New products, new management, new highs: Buying at the right time
S = Supply and Demand: Shares outstanding plus big volume demand
L = Leader or laggard: Which is your stock?
I = Institutional sponsorship: Follow the leaders
M = Market direction: How to determine it
“The How to Make Money in Stocks” by William O’Neil