Many investors use a structured form of analysis to determine how good of an investment in a specific stock is before adding it to their portfolio. Stock picking is also widely known as active management. When stock picking, understand your goals and look into some of the greatest investors in stock picking.
These investors all differ as they have different approaches, techniques, and philosophies applied while trading. Although some of these investors developed innovative ways to help people analyse their investments, some decided to pick security. However, these investors all developed the ability to beat the financial stock markets consistently.
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Some of the best stock picking investors we will be discussing are:
- Warren Buffett
- Benjamin Graham
- Carl Icahn
- George Soros
- Charlie Munger
- Peter Lynch
- Allan Gray
- Ray Dalio
Warren Buffett
Warren Buffett is widely referred to as the “Oracle of Omaha,” the wealthiest and one of the greatest investors. He is known as a value investor because he invests in companies when they are still cheap enough to offer him a safety margin. However, there is much more to his success than his initial investment strategy of buying undervalued companies and reselling when valued.
Many of his best investments are in companies that have had steady earnings for a long time. Warren Buffett’s approach to the market is long-term, and he would often accumulate cash over the years without index investing. However, when there is a massive dip in the stock market, he will happily spend billions if the stocks are undervalued.
Also, Warren Buffett did not focus solely on dividend investing; many of his investments currently bring about massive dividend flows. His strategy shows the positive effects of compounding for an extended period, which is why he is widely known as one of the most profitable investors.
The fund manager built a multibillion-dollar fortune by acquiring businesses and stocks through his firm (Berkshire Hathaway). Under the leadership of Warren Buffett, the company has had an average annual return of 20% since 1965. The return was twice the market performance of the S&P 500 in that period.
For Warren Buffett, patience is vital when investing, and it is best to invest early and think about the long term. Also, focus on what you know and understand best about the financial markets before investing. His skill earned him the title of one of the greatest investors of all time.
Benjamin Graham
Benjamin Graham, one of the best investors of all time, is widely known for his fundamental investment discipline, which earned him the title “father of value investing.” The fundamental disciplines are value investing and security analysis. He was a financial educator and investment manager who excelled in the stock market.
The intelligent investor is Warren Buffett’s mentor and authored two books on investment classics of unparalleled importance. From 1936 to 1956, Benjamin Graham’s firm actualised an annual return of close to 20% when the market dipped to 12.2%.
Graham ignored the earnings and revenue forecasts when he looked for good investments. However, he fundamentally analysed the company’s income statements and imbalance sheets. In Graham’s philosophy, he only invested in security worth more than he had to pay.
Also, he preferred investing in companies with solid margins and balance sheets. He ensures that these companies have little or no debt and sufficient cash flow before investing. Benjamin Graham influenced a lot of other successful investors in his time; hence his legacy will remain forever.
Carl Icahn
Carl Icahn is a philosophy student popularly known as one of the “corporate riders.” These corporate riders are one of the most successful investors of all time that used techniques to squeeze profits from companies in the 1980s. One of the techniques is known as the greenmail technique. The greenmail technique is when a company offers to repurchase its stock from an investor at a higher price in exchange for the investor to leave the company.
Although he is known popularly for having a rigid negotiating style, he is one of the best investors in the world. Icahn also called Ackman’s trade on Herbalife a “liar” on national TV and took the other side of the business. He made a fortune by purchasing and holding a large stock for years. Besides, after reading such interesting biographies of serious people, you can read something funny, like gambling jokes.
John Templeton
John Templeton (one of the greatest investors of all time) is the mastermind behind Templeton Growth Fund and the use of a diversified mutual fund. The growth fund was later sold to the Franklin Group in 1992. As another top-value investor, he had a similar approach to Allan Gray and Warren Buffett. However, he had the potential to invest in a new company and watch its growth potential.
During the depression in the 1930s, Templeton began to invest. He purchased some beaten-down stocks during World War II and made a fortune. Throughout John Templeton’s career, he invested significantly during periods of extreme cynicism. Templeton also launched the Templeton Growth Fund in 1954.
The growth fund later yielded a return of over 15% yearly consecutively over the following 38 years. Templeton also spearheaded some industry-specific bond funds and the world’s first sector. Some of these mutual funds were invested in nuclear energy producers and manufacturers of chemicals and technology companies.
Templeton was also one of the early investors in Japan as he began to buy some Japanese equities in the 1960s. He later sold the equities during a bubble in the 1980s. According to John Templeton’s philosophy, diversify your investments to avoid bad losses. He led a successful investing career with bond and portfolio analysis and earned the trust of retail investors.
George Soros
George Soros is one of the greatest investors and the first popular hedge fund manager, which later became a family or household name. Currently, Soros is 90 years old, and his main concentration is on philosophy. Regardless, the hedge funds manager is still actively involved in the stock market, and his household firm (Soros Fund Management) is still operational.
From the 1969s to the mid-1990s, George Soros became famous, and his quantum funds had a return of an average of 30% yearly. The average returns also tripled in the next two years. In 1992, he placed a large bet against the United Kingdom Pound that the Bank of England would devalue the currency. That single trade against the UK pound earned him over $1 billion.
George Soros has a skill that enables him to understand the different relationships between asset prices and the global economy in the world. He often trades a lot of asset classes and is confident in hedging, market timing, and short selling. Soros often makes huge trades when he is confident about a current position.
He also authored a book called “the alchemy of finance”, which explains his take on reflexivity (behavioural finance). The reflexivity theory shows that the biases and beliefs of the investor create feedback loops. In his research, he determines the fair value of assets and the role individual emotions play in the price of assets.
Charlie Munger
Charlie Munger is a long-time business partner of Warren Buffett. In 1978, he assumed the position of Berkshire Hathaway’s vice chairman. Although he is famous for being Warren Buffett’s right-hand man, he had a successful investing career before he joined the Omaha conglomerate.
This investor is famous for responding to the shareholder’s questions at Berkshire’s meetings in two ways. At first, he might offer the shareholders a piece of knowledge on how to succeed. For example, he might suggest that you will most likely be happy if you reduce your expectations. Second, he might offer the shareholders a curt “no comment” following Buffett’s response.
Munger has an intellectual approach to investments which makes him famous among investors. He often cites a mantra “invert, always invert”, which suggests that the investors avoid things they know will fail instead of finding practices that will lead to success. When investors avoid certain failures, they have more opportunities to succeed.
Peter Lynch
Peter Lynch authored two books titled “One Up on Wall Street” and “Beating the Street”. He released each book in the years 1989 and 1994 consecutively. Lynch has one of the most fund successes of all time, Fidelity’s Magellan Fund. The Fidelity’s Magellan Fund racked up a good return for him.
From 1977 to 1990, he had an average annual return of 29.2% for investors that held on. However, many investors did not, which led to one of the major lessons he taught investors. The lesson entails that “money chases the hot funds from year to year. Hence it can easily miss a rebound in a fund”.
Peter Lynch is famous for its smart approach to growth stocks in the growth investing world. He beat the index benchmark of the S&P 500 in 11 years out of the 13 years he managed the Fidelity Magellan Fund, achieving a 29% annual return average. Lynch was often described as a chameleon as he adapted to any investment style that worked at the time. He also stuck to only what he knew and could understand without stress.
Allan Gray
Allan Gray is one of the best money fund managers and investors of all time in the world. In 1973, he started Allan Gray Investment Management which he situated in South Africa. He later moved to London and then Bermuda, where he started Orbis Investment Management in 1989.
Although Gray was not involved in the company’s day-to-day management in South Africa, it generated vast and impressive returns. He had a flagship fund at Orbis, the Orbis Global Equity Fund. Allan Gray died between 1989 and 2019, and the fund returned 11.3% yearly. The returns compare to 5.8% for the average global equity fund and 7.3% for the FTSE world index.
The Orbis operates on value investing and a contrarian approach when investing in stocks. There is a team of professional fixed income analyst society working with the company to research several investment ideas. The stocks are selected using a “bottom-up” approach, which ignores the company’s economic factors, index weights and sector performance.
Ray Dalio
Ray Dalio is a retired founder of the world’s largest successful hedge fund management firm (Bridgewater Associates). In 1975, Dalio started Bridgewater with the initial focus of the investment firm on government and corporate consultancy on interest risks and currency. He developed a systematic approach to investing fundamentally.
The decisions and ideas at the firm were strictly debated with the tracking of the forecasts. Between 1991 and 2011, Bridgewater produced a return of 13% yearly.
Conclusion
Several investors became successful in stock picking by following different approaches. These investors overcome various financial obstacles and develop strategies that facilitate their success in stock picking. Owning various companies’ stocks helps build savings, maximise income and protect funds from inflation.
