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Trading Strategies of Famous Investors » Tips for 2019

The paths that famous investors take and the strategies that they employ in their own portfolios can be useful tools to apply to your own investments. Some of the greatest investing minds over the past 100 years have shaped the way that we continue to invest in the modern age, using numerous techniques. Here are some of the most famous techniques and strategies used by famous investors:

  • Looking for companies that fall outside the scope of mainstream trading
  • Making smart investments
  • Doing your research to respond to market volatility
  • Implementing bold strategies that you can trust and get behind
Stocks Highlights

Bet on the little guy – John Templeton’s small investments with large payoffs

John Templeton earns a spot in this famous investors trading strategy guide thanks to his shrewd business sense and bold methodology, which led to him becoming one of the most famous investors of all time. Templeton founded his investment firm while America was still in the grip of the Great Depression, but over time, he was able to amass over £237m in assets with eight mutual funds. The success of his company was based in part on Templeton’s own trading strategy. In 1939, he famously bought a £79 share in just over 100 different companies on the New York Stock Exchange, which were all trading below USD$1 per share. While a sizeable portion of these companies went bankrupt, Templeton was still able to turn a profit of nearly four times his investment amount over the next several years. While this exact strategy may not be advisable, the concept of betting on underdog companies that are valued low in the marketplace but have favourable projections can be applied to your own portfolio. While Templeton is remembered for his gutsy strategies, it is also important to keep in mind that he invested within hard limits in order to balance risk and profitability.

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Invest smarter – Benjamin Graham, the father of value investing

When looking to the trading strategies of famous investors in the 20th century, Benjamin Graham is one of the first names to spring to mind. Colloquially known as the father of value investing, his life’s work focused on investor psychology and the principles of common sense as a means of making smarter and more secure investments. His trading strategies included investing in margins of safety, meaning that you should look for companies that are likely to deliver reliable profits over investments with higher degrees of risk. However, he was also aware of the volatile nature of the marketplace and advocated for turning this instability to your advantage whenever possible. Buying from strong companies that are undervalued in the market and then selling when holdings are overvalued are methods with which Graham made his name. Graham argued that in order for a trade to be a true investment, it must promise an adequate return. Any trade that is unable to meet the requirement of safety of principal is then mere speculation, according to Graham’s writings. Purchasing investments that you are fairly certain will be profitable is one of the main strategies for which Graham continues to be remembered.

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Know the market – how Peter Lynch’s informed investments generate flexibility

Peter Lynch has gained notoriety over his career thanks to his ability to shift strategy and style to whatever is most profitable in any situation, at all times. Rather than banking on market predictions, Lynch advocates for a bottom-up approach, where you gather as much information as possible about a potential investment in order to make knowledgeable decisions. Focusing on investing in reliable companies as Lynch does means purchasing for the long term, in lieu of reacting to every fluctuation in the marketplace. That being said, Lynch advises even beginner or casual traders to abide by the same guiding principle that he himself uses of making flexible trading choices that are backed first and foremost by sound information. Lynch is renowned for his humility and always touts his ability to learn from his own mistakes as one of his most successful strategies. Understanding the investments that you make and knowing exactly what you own allows you to adapt to changes in the marketplace more efficiently. The strategies that Lynch used to grow his company’s assets from £16m to over £11bn are hinged on the ability to use knowledge of the market to your best advantage, which is why it remains one of the best-known trading strategies of famous investors even into the 21st century.

Strategic investing – Carl Icahn’s effective calculations and decisive actions

In the last several years, Carl Icahn has managed to develop a reputation of being a ruthless and effective strategist. Like many of his fellows in the top investor's list, Icahn is noted for his against-the-grain investment strategies, famously choosing to buy when trends are towards selling, and vice versa. In fact, his instinct is so renowned in the trading world that a phenomenon is known as the “Icahn lift” is named after him, describing the behavioural pattern where a company’s stock price experiences a generous uptick in other stock purchases after word gets out that Icahn has chosen to invest in them. The cutthroat manner of Icahn’s investment strategies is not necessarily appealing to all investors. Icahn will typically make moves that benefit himself as an investor over the individuals running the company, such as moving to fire underperforming CEOs or splitting larger companies into smaller pieces. Also, this option is not necessarily available to a more casual trader.

  • Went against the grain with the majority of his investments
  • Not a typical investor – many did not want to follow in his footsteps
  • “Icahn lift” was named after this investor

That being said, the main tenets of Icahn’s strategy of doing what is best for your own portfolio without falling victim to sentimentality, and choosing to invest in companies that are successful and that reflect your own personal beliefs, are two tips that any trader can put to good use.

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Follow your gut – George Soros’s ability to capitalize on organized chaos

While some of George Soros’s more unorthodox investing strategies involve quite a bit of risk, his high-leverage betting techniques are always logically driven. Known colloquially as the man who broke the Bank of England, Soros became famous virtually overnight thanks to a single currency wager that netted him a cool $1bn profit from a single trade and within a single day. It’s not really possible to replicate this same bet exactly, but the principle that lead Soros to making the wager in the first place is a tool that can be used on a much smaller scale. Being able to capitalize on trends is a sign of a smart investor, but this can only be done with careful study of the marketplace. That being said, clearly not everything that Soros bets on is strictly by the book, so to speak. In his own personal investment strategies, Soros demonstrates both the importance of being able to read the larger picture of the marketplace, while at the same time trusting your instincts as a guiding force in your portfolio. The movements of the market are not always predictable, but most trading strategies of famous investors prove that having the guts to take advantage of smart trades can be a tool used to your advantage.

Keep it simple – Jack Bogle’s gift to the common investor’s portfolio

Jack Bogle is one of the most influential investors when it comes to the way that the average investor of the 21st century manages their portfolio. In fact, the company that Bogle spent the last few years of his career with, Vanguard, continues to be a top pick in broker comparison almost 20 years later. As the inventor of the broad-based mutual fund, Bogle has a few core rules when it comes to trading: do it simply, do it cheaply, and keep looking forward with a clear head. By piloting funds that are affordable, passively managed, and experience low turnover, Bogle’s claim to fame is an investment strategy that benefits not only his own portfolio but also that of most average investors. Focusing on sustainable, long-term strategies that are mostly static and require very little emotion or time to maintain, Bogle’s theories are the easiest to replicate for any casual investor. Thought to be one of the top investors in the world, Bogle makes his money by focusing on pure analysis unfettered by feelings or stress. His opinion on trading is that it should be thorough and that you should feel comfortable that your long-term, economical investments will easily turn out the profitability that you can pretty well depend on. After all, that’s what he does.

Looking to the future – Philip Fisher and long-term investment success

One of the foremost advocates of buy-and-hold techniques, Philip Fisher made the bulk of his fortune by purchasing shares from a small number of trusted companies and then sitting on them. Fisher is famously known for holding on to his shares of Motorola for almost 50 years, and in fact still held them at the time of his death. Contrary to some of the famous investors who point to diversification as a means to greater security, Fisher erred on the side of simplicity. He argued that a few companies that you knew well enough to trust for long-term investments were more secure, as long as you had the know-how to pick companies that were well managed and aimed for steady growth projections. One method that Fisher used to ascertain whether the management quality and company itself were of a calibre that made them a worthy investment was networking. Famous for doing incredibly thorough research before investing, Fisher used his networking connections to suss out useful business opportunities.

  • Fisher made the majority of his money through shares from a small pool of companies
  • Preferred keeping this simple rather than vast diversification
  • Put a large emphasis on networking and having plenty of connections

While the average investor likely doesn’t have the benefit of the same kind of connections that Fisher was able to enjoy, the principle of knowing exactly what kind of company you’re leaving your money with can still help to guide your own investment strategy.

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Don’t lose money – Warren Buffett’s belief in the intrinsic value

Warren Buffett is a common household name thanks to the tremendous success that he has been able to generate with Berkshire Hathaway, one of the most valuable companies in the world. The investment strategy that Buffett uses focuses primarily on intrinsic value, with a heavy emphasis on keeping things as simple as possible. Warren Buffett’s view of the marketplace is that the vast majority of companies selling their stocks are merely average, or worse and that a smart investor is able to tell which good businesses are worth the price they ask for. Once in a while, however, a rare “good” company will sell stocks at less than what they are worth, so good investing means waiting out for this occasion and then acting quickly once it arrives. For instance, in the mid-1970s, Buffett was able to acquire an assembly of companies, such as ABC and The Coca-Cola Company, at rock-bottom prices that were much lower than their actual value thanks to the market collapse.

  • Buffet’s strategy focused heavily on simplicity
  • Having the patience to wait for a “good” company to invest in is crucial
  • Take advantage of market collapses to buy low

While this strategy looks unlikely to be successful in the context of the larger movements of the marketplace, ignoring market forecasts that follow variable trends in favour of focusing on strong, predictable companies can wind up being more beneficial in the long term, as evidenced by Buffett’s own business practices.

Conclusion:

Conclusion:

The most famous investors in the modern age found success thanks to a variety of different techniques. Some advice from these famed investors is contradictory, such as the diversification that John Templeton advocates for versus Warren Buffett’s focused strategy. However, there are some common threads across many of these strategies that can be applied to any portfolio. For instance, even seemingly more impulsive investors such as George Soros still advocate for doing your research and then trusting your gut instinct. Another technique that most famous investors share is privileging simplicity in their portfolios and looking for ways to either rise above the volatility of the market or use it to your advantage, rather than bobbing along at the whim of the waves. Ultimately, how you choose to invest is a decision that is yours and yours alone, and following the example of some of these famous investors is either not possible or inadvisable. That being said, some of the trading strategies of famous investors that allowed them to find success in the world of investing can be of service in the right place and at the right time.

Stocks Highlights