October 26, 2015
We all know that past performance does not guarantee future results but what can we learn from those who have consistently done well in the investment markets over long periods?
Of course the definition of the length of a “long period” depends on your perspective. In the US an investment group that has been dispensing opinion and managing money in the market for greater than thirty years is the exception. By contrast in Europe there are firms that have managed money for not just decades but for centuries.
A recent visitor to our offices from England left behind a copy of the UK paper “The Daily Telegraph”. It is always good, and sometimes refreshing, to break out of your normal sources of information, and so it was with delight that I found an article written about the smart money minds that manage the Church of England’s assets. The age old (since Henry VIII!) and mature thinking in the article reaffirmed the importance of taking a long term view as the proven way to build real value.
More specifically the article identified four world class investors who followed key tenets when investing. Here are the investment “secrets” of these four famous investors:
- “Only buy something you would be perfectly happy to hold if the market shut down for 10 years.”
- “Investigate before you invest – study companies to learn what makes them successful.”
- “The right method of investing is to put fairly large sums into enterprises which one knows something about and in the management of which one thoroughly believes.”
- “Never invest in any idea you can’t illustrate with a crayon.”
Of this elite group of investors two are still alive and practicing their craft: Warren Buffett at 85, and Peter Lynch at 71. The other two have passed, Sir John Templeton who died at 95, and John Maynard Keynes who died at the young age of 63. Can you guess who each rule belongs to?
It is striking that this group’s wisdom can be boiled down to such simple beliefs, and that these beliefs are very consistent with each other.
Rule 1 illustrates Buffett’s distaste for short term investing in the markets. Even Buffett realizes he cannot predict what the market will do day in and day out. Buffet instead invests in companies he understands.
The approaches of Templeton, Rule 2, and Keynes, Rule 3, are similar – understand the risks you are taking and, once you have studied your options, act on them.
Lynch is probably my personal hero not least because of his reference to the crayon in Rule 4. My wife will attest that when she hears me say “Give me a piece of paper and a pen”, a mini lesson is about to start on some aspect of the financial world. As Lynch would say if you cannot explain something on a single piece of paper using a pen or a crayon, you probably do not understand it yourself….so don’t invest in it!
It behooves all investors to remember the four Rules of a group which has thoughtfully and carefully built such substantial wealth.