7 Lessons From The Great Investment Gurus…
Jun 26, 2019

Author: Aditi Murkute

​​
(Image source: business photo created by rawpixel.com via freepik.com)

Google "Top Investors" and the first six names to appear are Warren Buffett, Benjamin Graham, Peter Lynch, Carl Icahn, George Soros, and Rakesh Jhunjhunwala in this sequential order.

From several years these top investors have been ruling the world of investments. Everyone aspires to be just like the "Oracle of Omaha" (Warren Buffett), and/or, as the Economic Times describes him, the "Pied Piper of Indian bourses" (Rakesh Jhunjhunwala)

Ever wondered:

How did they reach the pinnacle of investment success?

What makes them "Top Investors"?

[Read:  Do You know How Warren Buffett Manages His Wealth?]

In fact, despite being different individuals, they share similar investment approaches and principles.

Let's look at some of their investment approaches and habits...

  1. Belief in Value investing:

    The actual value/intrinsic value lies in something that's currently available at a discount or at a price lower than its actual worth. Hence, it's important to understand the intrinsic value of the business, by forecasting the present value of all future cash flows and paying attention to ratios viz. Price-to-Book value (P/B), Price-to-Earnings (P/E), Price-to-sales, Dividend Yield, and evaluating many other parameters.

    Value Investing is more concerned with business fundamentals rather than factors affecting the market sentiment. Benjamin Graham was the first to advocate this.

    Warren Buffett mentions "Price Is What You Pay, Value Is What You Get" and Rakesh Jhunjhunwala says "Never in my life have I not made an investment because the stock is not popular. In fact, I like to make the investment when the stock is not popular."

    From both these quotes, you can see that value investing is one of the keys to successful investing.

    [Read: Looking for The Best 'Value Funds' For 2019? Find Out Here]

  2. Invest with an open mind and educate yourself

    "Risk comes from not knowing what you're doing" - another quote of great Warren Buffett suggests that taking the plunge is equally important.

    So be well aware that to gain, one must bear a certain level of risk.

    Each investment avenue has risk involved. You should educate yourself to know the level of risk involved and your willingness to accept the loss in order to grow wealth over the long-term.

    Even Rakesh Jhunjhunwala conveys the same thing: "Respect the market. Have an open mind. Know what to stake. Know when to take a loss. Be responsible". You should be well prepared and conscious about the various investment risks if you want to invest in large caps or in mid and small caps.

    [Read: Willing To Take Some Investment Risk? Mutual Funds Are Your Best Bet]

  3. Invest in understandable businesses/investments

    "Don't worry about things that you neither know about nor can do anything about. It's not important. Instead, focus your energies on what you can and should know well enough - the business of the company you are investing in ", these words of Rakesh Jhunjhunwala are similar to Peter Lynch's mantra, "Invest in what you know".

    These apply to the "ever-greedy-speculator" and an "investor" in all of us. Invest in things that you know, easy to comprehend, and therefore easy to track.

    Just to put things in perspective, Charlie Munger believes Bitcoins to be poison! Let the speculators speculate. Being an investor, you should stay focused on creating wealth.

    [Read: Best SIPs To Invest in 2019]

  4. Investing is an individual exercise

    "But investing isn't about beating others at their game. It's about controlling yourself at your own game." These great words by Benjamin Graham warn us about the herd mentality bias, where we invest in whatever friends or relatives or colleagues are investing in without conducting a proper suitability assessment or background check.

    Remember, what works for others may prove to be a debacle for you.

    "Blindly following stock picks by big investors is not a wise thing to do", stresses Rakesh Jhunjhunwala as well. A "one size fits all" investing approach doesn't exist.

    Hence it is crucial to create your own investment strategy and adhere to it diligently.

  5. Don't get emotional with investments

    Warren Buffett in one of his speeches said: "Most behaviour is habitual, and they say that the chains of habit are too light to be felt until they are too heavy to be broken." The essence of this, is successful investors are in the habit of being patient and invest for the long-term. But when we witness a downward trend of a particular investment over a short time span, we panic, lose patience and give in to our emotions.

    Even India's most successful investor, Rakesh Jhunjhunwala, is of the same view, "Emotional investment is a sure way to make loss in stock markets."

    So, if you want to invest in equities be headstrong. If you want to grow wealth, focus on longer investment time horizons as per your financial goals and do not get deterred by short term aberrations or the risks.

  6. Stop waiting, start investing and for the long term.

    "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves" - this is Peter Lynch's counterargument to investors who wish to time the market. It reflects the mindset of all investors today who are waiting for a subsequent fall in the markets to invest.

    Avoid trying to time the markets, instead invest systematically (preferably via SIPs in mutual funds), be disciplined. What matters is the "time in the market" and not "timing the market" When you opt for SIP investments, it helps you to deal with the shocks of volatile markets and build a corpus to accomplish your financial goals including, to be the 'Oracle of Omaha' of your city!

  7. Use common sense

    Another pearl of wisdom first practised by Benjamin Graham as well as followed and shared by Warren Buffett is, "To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework."-- from Preface to the book "The Intelligent Investor" by Benjamin Graham.

    It is essential that you invest thoughtfully and not in an ad-hoc manner. Investments must be done with a sound investment strategy that's aligned to your goal-based financial plan and do not fall prey to any behavioural biases.

There's an investment strategy, called a Core and Satellite approach of investing, is a well-researched and is a time-tested strategy to build your investment portfolio that helps you create wealth over the long term.

As the threats and opportunities stand even, the composition of your mutual fund portfolio will decide your investment success.

[Read: Why Portfolio Characteristics Of A Mutual Fund Are Very Important]

And for that, you don't have to be too aggressive or too conservative with your choice.

In this Core-and-satellite strategy of investing, for the mutual fund investors, core holdings should form 60% of your mutual fund portfolio and the rest 40% should consist of satellite holdings.

Weightage of each portfolio constituents in both 'Core' and 'Satellite' categories can make a huge difference in the end.

Hence, the 'core portfolio' should consist of large-capmulti-cap, and value funds, and the 'satellite portfolio' should include mid-and-small cap funds and opportunities style funds.

What are the benefits of the Core and Satellite approach?

Offer optimised portfolio diversification.

Provide robust stability to the portfolio and avoid unnecessary churning.

Benefit from the dual investment strategy.

Avoid all unnecessary market noise without letting your portfolio suffer.

Capable to create wealth and curb the downside risk to the portfolio substantially.

PersonalFN believes, what matters most is the art of cleverly structuring the portfolio by assigning weights to each category of mutual funds and the schemes picked for the portfolio.

Unless you monitor your holdings and recalibrate the weights as per the market dynamics, especially for the 'Satellite' part of the portfolio, you may not derive the real benefits of the 'Core and Satellite' approach.

While the 'Core' part of your portfolio focuses on the stable schemes with a long-term view and the 'Satellite' part revolves around capitalising on short-term opportunities. This unique combination helps you generate superior returns without taking excessive risks.

Creating a mutual fund portfolio following the Core and Satellite strategy isn't impossible for you, but it requires a different level of skill set.

Also, you will have to dedicate time to do a thorough analysis to create your own strategic portfolio., However, if you don't have the time or skills required, you can seek guidance from well certified, experienced, and unbiased advisers and backed by research from reputed firms.

To conclude:

Every successful investor, around the world, stresses on the importance of goal-based investing for the long term, taking in cognisance, risk profile, and financial positioning to create a financial plan. They also emphasize on conducting diligent research before investing and periodically reviewing your investments objectively and rationally.

Editor's note: We have a ready solution if you are looking at high rewards with moderate risk:  PersonalFN's Premium Report, "The Strategic Funds Portfolio For 2025(2019 Edition)".

In the 2019 Edition of PersonalFN's Premium Report, "The Strategic Funds Portfolio For 2025", you will get access to a ready-made portfolio of top recommended equity mutual funds for 2025 based on the core & satellite approach to investing. These mutual fund schemes can generate lucrative returns over the next 7-8 years. Subscribe now!



Add Comments

Financial News. Simplified


Knowledge Center


Money Simplified Guides (FREE)


Mutual Fund Fact Sheets


Tools & Calculators