Here they are... the best value investors in the world↓
The people we strive to become using the strategies we should mimic.
While each was successful using varying tactics, they all followed the principles of value investing, a strategy that has been proven for almost a century now.
“Investors have no reason to feel bearish. True value investors are glad the markets are down.”
The late Irving Kahn (1905-2015) will be one of the lesser known names on this list, but he was an accomplished human being and a remarkable value investor. Born in 1905, he was actually a teacher's assistant for Graham at Columbia and the oldest active investor ever (109).
Kahn is an excellent case study for value investing because many of the attributes he sought after nearly a century ago are even more relevant today. He required healthy financials (little to no debt), strong management, and sizeable growth potential, a checklist many investors now should follow closely. A "deep" value investor, Kahn often looked for small- to mid-cap stocks over larger companies.
“Buying good businesses at bargain prices is the secret to making lots of money.”
Author of The Little Book That Beats the Market and You Can Be a Stock Market Genius, Mr. Greenblatt is a true Benjamin Graham-style value investor. He founded Gotham Capital and promptly produced 50% returns for the next ten years. He's big into numbers and research, and prefers companies with a high return on capital and great profit margins.
While definitely a Graham and Dodd style investor, his strategy was a lot more focused, usually owning only between 5-10 stocks. Greenblatt's simple techniques and common sense approach to investing are two major reasons I highly recommend both of his books.
“We like to buy stocks we feel are undervalued, then we have to have the guts to buy more when they go down.”
Walter Schloss is the ultimate proof that the everyday person can not only invest for himself, but do so quite well. He had no formal qualifications, never went to college, and never touched the internet, yet he averaged 16% annualized returns for over 40 years. His investing philosophy can be summed up in one sentence, “We buy cheap stocks.”
But Schloss wasn't referring to price, cheap meant buying companies with strong financials and assets below their book value. While he diversified beyond every other investor on this list, sometimes owning >100 stocks, he performed diligent research by using Value Line and asking for annual reports, a process we should all replicate.
“If you want to have a better performance than the crowd, you must do things differently from the crowd.”
Born into a poor Tennessee family, John Templeton went on to become one of the most successful investors and accomplished philanthropists of all time. A true contrarian, he bought when times were bad (The Great Depression, WWII) and sold in times of euphoria (DotCom). Templeton summed up his investing style as “bargain hunting” and his mantra was to “search for companies around the world that offered low prices and excellent long-term outlook.”
Mr. Templeton's philosophy differed from others on this list in that he took a more international approach, searching for up-and-coming global markets. He also focused on extremely cheap stocks, not necessarily “great companies”, that had been completely neglected.
“Heads I win; Tails I don’t lose much.”
Compared to the legends in this list, Mohnish Pabrai would appear to be a newcomer to the game of value investing. But his results and incredible success demonstrate a smooth, sharp, and old-school style. A self-described “shameless cloner”, Pabrai's favorite tactic is to simply replicate the best investors in the world, mainly Warren Buffett, and it has worked very well, outperforming more than 99% of managed funds.
He's probably too humble, as his strategy is quite impressive as well. By using a checklist, analyzing fundamentals, and weighing downside, Pabrai's philosophy is to buy ownership of a company (stocks) using a low-risk, high reward system. If you want to try and clone Mohnish Pabrai, he says start out with Buffett's annual letters to shareholders, or you can just read his brilliant book The Dhandho Investor.
“The single greatest edge an investor can have is a long-term orientation.”
Seth Klarman, founder of the Baupost Group, is probably most identified by his stellar and cult-classic book Margin of Safety. Now out of print, this classic generally runs north of $1,000. While I certainly don't recommend paying that much, if you can get your hands on it, you won't be disappointed (I haven't seen the definition of value investing and the concept of margin of safety explained so well before).
He's also a very successful investor himself and a strict adherent to value investing principles. Klarman is extremely risk-averse, despises most of Wall Street (as he eloquently demonstrates in his book), and looks for special situations, playing in the bankruptcy and risk-arbitrage arenas quite often. His best attribute though, in my opinion, is his contrarian style. He goes against the crowd regularly and isn't afraid to hold a large amount of his portfolio in cash, something that is very hard for most people to do.
“People are trying to be smart - all I am trying to do is not to be idiotic, but it's harder than most people think.”
Charlie Munger is the vice-chairman at Berkshire Hathaway and Warren Buffett's right hand man since 1975. Born in 1924, Munger was a brilliant investor long before him and Buffett joined forces, averaging about 24% from 1962-1975 (Dow averaged 6.4% in the same period). He was the driving force behind Buffett altering his investing philosophy from buying “cigar-butt” stocks to purchasing wonderful companies at fair prices.
His quality over value style has dominated both his and Buffett's investing careers later in life, with their emphasis now on return on equity/capital and the company's ability to invest that cash back into the business. Mr. Munger takes a multidisciplinary approach to life and investing, claiming to "know a little about a lot." He is, without doubt, one of the most interesting investors on this list and has a tenacious appetite for reading.
“Go for a business that any idiot can run - because sooner or later, any idiot probably is going to run it.”
The Peter Lynch era of the Fidelity Magellan Fund, 1977-1990, is the stuff of legends. He grew $14 million into 20 billion, averaged annual returns near 30%, and beat the S&P nearly every year. You could argue that Mr. Lynch should be #1 on this list, and you know what, you'd probably be right. Author of One Up on Wall Street, he's the guy that the every day person should study closely and follow religiously. He takes a spot on this list because his style mimics that of great value investors.
By performing due diligence (he had a famous work ethic), investing in what he understood, and maintaining a long-term outlook, he exemplified the best of value investors. Lynch preferred cash-rich companies and despised what he called “taking long shots”. The detailed information and process he lays out in One Up on Wall Street are absolutely monumental for the individual investor, who, Lynch argued, could easily outperform the Wall Street “experts.” If you haven't read this book yet, you are missing out.
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
Ben Graham is the sole reason many of these investors are on this list, heck he's the reason this list exists. Graham, born in 1894, and his seminal works Security Analysis and The Intelligent Investor, laid out the entire foundation for the value investing philosophy. If it wasn't for his esteemed student (see below), he would be the clear #1. Margin of safety, the idea of buying stocks below their intrinsic value to limit risk, and Mr. Market, your bipolar friend who sells stocks, are two of the greatest concepts to ever embrace the investing world.
His focus on quantitative data, long-term outlook, and use of the aforementioned notions led him to 17% annualized returns for over 30 years after the Great Depression. Graham's philosophy and strategies have been around for nearly a century now, and are more relevant today than ever.
“Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Who else but the Oracle of Omaha himself to lead our list. Probably the most famous, possibly the most copied, but definitely the most successful investor of all time. Warren Buffett was born in 1930, made his first investment at 14, was a millionaire by 30, and now has a net worth that hovers somewhere above $60 billion. A student of Ben Graham, Buffett's investing philosophy has evolved into, as he states, “buying wonderful companies at fair prices”, largely due to the massive amounts of money he's dealing with.
However, he still uses value investing principles such as margin of safety, analyzing fundamentals, and seeking out honest management. Despite his extreme success and wealth, Buffett is a wonderful philanthropist and an ardent believer that the individual can easily best the big money over at Wall Street.
“Usually a very long list of securities is not a sign of the brilliant investor, but of one who is unsure of himself.”
Since Fisher wasn't a value investor by definition, he makes this list as a bonus entry. He deserves to be here based on his investing philosophy as well as the impact he had on several investors already mentioned. While Fisher was considered a growth investor, he focused on many attributes that coincide with a value-minded strategy. He was contrarian, focused (10-12 stocks), looked for great companies, wanted trustworthy management, and only bought stocks he understood.
Fisher would often dig deeper by using “scuttlebutt”, information obtained by interviewing employees, management, and even customers. He was also a true “buy and hold” investor, maintaining a very long-term view and only selling if the company's fundamentals were souring. Overall, he's an excellent example showing it doesn't matter what your investing orientation is, if you buy great companies at reasonable prices you'll be good to go.