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Notable Investors & their Methodologies
A way to start looking for investment possibilities is to look at individuals who have achieved success or have studied approaches that show promise. Here are a few notable investors whose ideas may help identify searches for you.
Benjamin Graham
Benjamin Graham is the author of
The Intelligent Investor: The Classic Text on Value Investing
and co-author of
Security Analysis
. These books are considered investor classics and are often referred to by individuals like Peter Lynch, Warren Buffet, and John Templeton. Graham's books are for investors wanting to be challenged by concepts and ideas beyond StockCentral's investment methods.
Some of Graham's screening suggestions include low valuation (PE and price/book value), low debt, and consistent growth in EPS and dividends.
Peter Lynch
Peter Lynch is a highly regarded stock market investor who ran the Fidelity Magellan Fund for 13 years. This was the top-ranked general equity mutual fund in the US. $1000 invested in 1977 was worth $28,000 when Lynch quit in 1990.
Lynch's advice in books such as
One Up On Wall Street : How To Use What You Already Know To Make Money In The Market
,
Beating the Street
,
and Learn to Earn: A Beginner's Guide to the Basics of Investing and Business
is to "invest in what you know". Work is required to research companies and find those that have the best growth possibilities. He suggests investing in good companies in out-of-favor industries and then patiently waiting for the market to realize that these companies are very good value, thus driving the price higher. He says that you can beat the market by ignoring what the herd of professional investors is doing. Also, you have the benefit of no restrictions on what you can do. You only answer to yourself. Some things he looks for are low valuation (PE and PE/EPS growth), low debt and high cash flow.
Warren Buffet
Warren Buffet was born in Nebraska in 1930. He lives there now, one of America's richest people, with a net worth of more than $9 billion. He amassed this fortune from investments in the stock market, starting with $100 in 1956. Mr. Buffet is particularly known as the CEO of the Berkshire Hathaway holding company, which operates like a mutual fund. There are investors who buy one share of this company in order to gain information about what Mr. Buffet is doing and thinking, as he expresses himself through the annual report and the annual shareholders' meeting.
Buffet is characterized as a value investor. He does not pay attention to what the stock market is doing. He studies the facts and financial condition of a company, considers the value of its prospects, and buys it when it is at a fair or bargain price. Buffet never invests in companies he cannot understand. He says that this is why he stays away from technology stocks.
He indicates that consistent EPS growth and high profitability and ROE (return on equity) are keys to quality companies. For more information, read
The Essays of Warren Buffett : Lessons for Corporate America
,
Buffett: The Making of an American Capitalist
,
or
The Warren Buffett Way
.
James O'Shaughnessy
James O'Shaughnessy's book
What Works on Wall Street
assesses investing methods by testing them with historical data. The results seem to indicate that value and growth characteristics have merit. However, he stresses that no one method is successful over prolonged periods.
Suggestions from his book include looking for established and larger companies, preferably leaders in their industries, with high dividend yields and cash flow and consistent 5-year earnings growth.
Summary
You can see that these notable investors share similar strategies.
1. Invest in what you know.
2. Do your homework to understand the company's situation.
3. Buy when the company's price presents good value for your dollar.
Some other strategy suggestions include finding companies with a small institutional following, looking for insider buying, and checking for positive share buyback policies.
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