Mar 24 2014
The world of investing can be scary to those who are new to investments or have had a bad prior experience. A person who invested in the Standard & Poor’s index of 500 selected stocks (S&P 500 index), a broad based measure of the market, at the end of 2006 and who exited the market at the end of March 2009 (when the stock market hit its 12-year low) would have lost over $4,500 or 44.5% of their investment. An individual who also invested at the end of 2006 but chose to stay in the market until the end of January 2014 would be up nearly 24% or $2,400. A person who invested after March 9, 2009 would have gained $11,403, or 104%, on their investment.
What all of this means is that most investors tend to make their decisions when it comes to investing based on emotions or a knee-jerked reaction to economic conditions as opposed to following a proven investment strategy. If investors followed the advice of the best financial minds they might develop a better understanding of the markets and how to improve their investment results. What advice can investors like Warren Buffet, Peter Lynch and George Soros give that can help you create or salvage your investment portfolio? Is it possible to emanate their success and experience the same investment results achieved by these individuals?
Warren Buffet, referred to as the Wizard of Omaha, is considered to be one of the greatest financial minds of all time. His company, Berkshire-Hathaway, is one of the most capitalized companies in the world: it’s valued at more than $250 billion. His company’s success makes Buffet one of the richest people in the world; he is worth nearly $60 billion. Buffet’s approach to investing is built around a philosophy of buying stocks with tremendous value and holding the purchases for the long term. In a 2013 letter to Berkshire-Hathaway shareholders, Buffet advises to, “Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick ‘no.’ ”
Along with Buffet, Peter Lynch is also considered among the top echelon of financial minds in the world. Lynch was a portfolio and money manager who in 1977 ran the highly successful Fidelity Investment’s Magellan Fund. When Lynch took over the fund it had $20 million in assets. During his 13 year leadership, the fund outperformed the 500 11 times and he grew the fund into the largest in the U.S. at more than $13 billion. He is known for his “Peter Principles,” which provide simple advice to everyday investors. One of his principles (#14) states, “If you like the store, chances are you’ll love the stock.” In simple terms, investors should focus on buying stocks from companies that they know.
George Soros is known as a top tier hedge fund manager whose $25 billion fund not only returns value to investors but is also used to fund his Open Society Foundation which invests in humanitarian, education and social issue causes around the world. Soros survived the Nazi occupation of Budapest during World War II as a Hungarian-Jew and eventually studied at the London School of Economics before going into finance with the launch of Soros Fund Management in 1973. The best advice from Soros for everyday investors to consider, is “Unfortunately, the more complex the system, the greater the room for error.” A simple approach to investing demystifies its complexities and may result in more success than chasing some complicated system that is hard to explain.
Ryan Del-ridge is a freelance financial blogger. He can frequently be found writing about tips for investing in oil wells and the keys to making wise financial decisions.