What can we learn from the super investors? By N e a l K e l ly
Successful investing involves money, knowledge, instinct and alchemy. The first of these is a given as you need to start with something. The second can be learned from other investors, financial advisers and through experience. The third is something that some seem to be born with while others acquire over time. The last, alchemy, is something rarer: a seemingly unerring ability to spot and turn almost any investment opportunity into pure gold time and time again. It is this rare investment alchemy that many of the world’s so-called super investors seem to have flowing from their fingertips. Over and over again their investment choices and strategies appear at first to confound the markets, yet turn in remarkable returns. So what is it about the track records of super-investors such as Warren Buffett and George Soros that makes them so enduringly successful and what can Irish investors learn from them? 80-year-old Warren Buffett is known as ‘the Sage of Omaha’ and is the Chief Executive Officer of Berkshire Hathaway which, although a publicly-owned company, is essentially his own personal investment vehicle. Buffett acquired Berkshire Hathaway in 1965 and over the next 43 years registered compound annual gains of 20.3%* - a startlingly consistent and impressive return. Buffett’s investment style is relatively simple and straightforward: he buys large shareholdings in companies whose business he understands and holds them for a considerable period of time. His favoured investment holding time-frame is ‘forever’. He is a great believer in the type of American companies and brands around which America is built such as Coca-Cola, Wrigley’s, Bank of America, Union Pacific Railways, General Electric and Wells Fargo. Because he claims not to understand technology this meant that he failed to benefit
from the rise in technology-related stocks during the 1990s, but it also meant he didn’t suffer during the dot-com crash at the turn of the century. Even though his holdings are biased towards US-based businesses, he is very careful to diversify his holdings across multiple market sectors, choosing the leading businesses in their field. George Soros rose to fame, or infamy, during the so-called sterling crisis of 1992. This was when the UK currency was ejected from the European Exchange Rate Mechanism. Soros made a profit of more than $1 billion in a matter of days by selling sterling short on the basis that it would fall when it left the ERM - which is exactly what happened. In contrast to Warren Buffett, Soros is an investor who thrives on taking very calculated risks. He established his main investment fund, The Quantum Fund, in 1969 and was prepared to bet much of its considerable value on the fall of sterling in 1992, and repeat the same trick five years later during the Asian Tiger crisis of 1997. Soros is a great believer in the understanding that markets are driven by irrational forces and responses to world events. He believes that equity, commodity, currency and property markets feed off themselves by rising higher than they rationally
2012