Great investors summarize their investment philosophies.
In 2012, writing in the Wall Street Journal, Jason Zweig penned an article, “Can You Sum Up Your Investing Philosophy in 10 Words?”This semester the students in Marquette’s AIM program are studying different approaching to investing. They are starting with the topic of understanding different investment philosophies.
An investment philosophy is defined as a coherent way of thinking about markets, how they work (and sometimes do not) and the types of mistakes that you believe consistently underlie investor behavior. An investment strategy is actually much narrower – another topic that the AIM students will be studying this fall.
Zweig asked some leading investors and financial thinkers for their own contributions. Here are a few:
Determine value. Then buy low, sell high. David Herro, chief investment officer for international equities, Harris Associates, and manager of Oakmark International Fund
If everybody wants it, I don’t. Avoid crowds. Gus Sauter, chief investment officer, the Vanguard Group
Other people are smarter than you think they are. Index. Laurence B. Siegel, research director, Research Foundation of the CFA Institute
Risk means more things can happen than will happen. Elroy Dimson, expert on long-term stock returns, London Business School, and co-author, “Triumph of the Optimists”
Invest for the long term and ignore interim aggravation. Charles D. Ellis, director, Greenwich Associates, and author, “Winning the Loser’s Game”
100% of business value depends on the future. Bill Miller, chairman and chief investment officer, Legg Mason Capital Management
Plan for the worst. Hope for the best. Robert Rodriguez, managing partner, First Pacific Advisors
Control what you can: your savings rate, costs, and taxes. Don Phillips, president, fund research, Morningstar
In the end, you cannot take your investments with you. Meir Statman, finance professor, Santa Clara University, and author, “What Investors Really Want”
The less portfolio management costs, the more you earn. Burton Malkiel, professor of economics emeritus, Princeton University, and author of “A Random Walk on Wall Street”
Own competently managed, competitively advantaged businesses at discounted prices. O. Mason Hawkins, chairman and chief executive officer, Southeastern Asset Management
Do the math. Expect catastrophes. Whatever happens, stay the course. William J. Bernstein, Efficient Frontier Advisors, and author, “The Four Pillars of Investing”
Fallible, emotional people determine price; cold, hard cash determines value. Christopher C. Davis, chairman, Davis Advisors and co-manager, Davis New York Venture Fund
Save. Invest long-term. Compounding returns builds. Compounding costs destroys. Courage! John C. Bogle, founder, the Vanguard Group
Are you smarter than the average professional investor? Probably not. William F. Sharpe, emeritus professor of finance, Stanford University, and Nobel Laureate in economics
Spend less. Diversify globally. Own whatever’s feared, shun whatever’s beloved. Robert D. Arnott, chairman, Research Affiliates LLC
The great investing analyst Benjamin Graham engaged in a similar exercise but came in at seventeen words: Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.” Benjamin Graham, “The Intelligent Investor,” Chapter 20.
Warren Buffett is the most successful investor of our time, perhaps of any time. He is famous for his pithy and witty quotes, which often appear in his annual letter to shareholders. Taken together, his quotes pretty well sum up his investment philosophy and approach. Here are his best sound bites on investing:
· Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
· Never invest in a business you cannot understand.
· I put heavy weight on certainty. It's not risky to buy securities at a fraction of what they're worth.
· If a business does well, the stock eventually follows.
· It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.