Best investment strategies and principles from the world’s top 4 investors
The best way to use your money to make more money is by investing the same in some profitable ventures. But one may wonder why does one need to make more money if he/she is already earning well. Around 90% of the world population is struggling to lead a life they dream of. No matter how much they earn, it is never enough. And let’s face it, working 2–3 jobs at a time is near to impossible. Hence, the best way to make the most of your unused money is to invest them. It also doesn’t require much of your time and effort. Your money is anyway lying idle in the bank earning a very nominal amount of bank interest every year. Why not invest the same in financial assets and earn a fortune out of it?
Investing your money will provide you with financial security, help you in beating inflation, plan your life after retirement, help you earn tax abatement and would help you lead the life you dream of.
There are countless options for building long-term wealth with the help of investment. Be it real-estate or IT, venture capitalism or network marketing, business ownership, or franchise, the list is on. With so many options on the table, it is important to sharpen our investment skills to be able to make the right choice for investments. Some of the skills required to be a successful investor are as under:
- It is important to have well defined investing strategy. Every investor is unique and has his/her own strategy. The idea is that no matter what strategy you follow, you should know and understand what you are doing.
- A good investor should be focused, patient and have strong control over his/her emotions
- He/she should be financially literate (basic financial and accounting knowledge)
- They need to be persistent and have an attitude of “never giving up for losing” which should be an integral part of investments.
- They should be passionate about what they are doing rather than focusing only on the reward. When you are passionate about the game, you work hard on becoming a pro in it.
- Successful investors must be disciplined and strictly stick to their strategies.
One can acquire these skills with sheer dedication and regular practice.
Besides acquiring the above skills, one should also read the important books on investment written by some of the prominent investors of the world sharing their own experiences and strategies. A few such books are:
- The Intelligent Investor
- Thinking, Fast and Slow
- Principles: Life and Work
- The essays of Warren Buffet
- Rich Dad Poor Dad
- The little book of common sense investing
- A Random Walk Down Wall Street
Investment strategies of some of the top investors of the world:
Ray Dalio
Raymond Dalio is a billionaire investor who is the founder of the investment management firm Bridgewater Associates. His firm became the world’s largest hedge fund in 2005. He started his investment career by working on the floors of the New York Stock Exchange. According to Forbes Magazine, Dalio’s net worth was $18.6 billion as of January 2019.
Some of his investing strategies are:
1. Diversifying your investments
Dalio’s strategy on the diversification of investment is based on the concept of reality. It teaches us to perceive the world for what it is rather than for what we believe it to be. It is always important to have a portfolio of uncorrelated investments. Having a total of around 15 uncorrelated investments reduces the risk factor by 80%. The idea behind having uncorrelated investments is to have a balanced portfolio that would perform well in different kinds of environments.
2. Try to learn the reason behind Interest Rates
A few popular quotes of Ray Dalio are: “It all comes down to interest rates” and “He who lives by the crystal ball will eat shattered glass.” When we are investing, we are putting up a huge amount expecting a future cash flow in return coupled with an interest rate. Many investors try to predict the interest rate in the future and make investment decisions based on it. This is not going to work all the time and will bring losses. The actual question investors need to ask is “why interest rates change?” Understanding the structure of interest rates and the reason behind their change will help in making correct speculations before investing.
3.Understanding Inflation Risk
Dalio considered inflation a prime factor for deciding a balanced portfolio. The impact of inflation on the financial market is inevitable. To ensure consistent returns over time, it is important to balance your portfolio that would perform well despite inflationary shifts. One thing to be noted is that Dalio never tries to predict deflation/inflation pressures. He focuses on designing his portfolio through data collected from existing economic scenarios. Different assets perform differently in different economic conditions. Bonds perform well during recessions while stocks do well in inflations. That’s why a balance between different kinds of assets is important.
4. Sell The Winners, Buy The Losers
Dalio believes that once the price of investment reaches its peak, the chances of further increase are rare. Many investors keep holding on to large winners even after the expiry of the winning streak. This is a huge mistake on the part of investors. The gains should be reinvested at the right time into good companies.
Warren Buffet
Warren Edward Buffett is considered as one of the most successful investors in the world. In the year 1956 Buffet formed the firm Buffett Partnership Ltd in Omaha. As one of his investment strategies to invest in undervalued assets, Buffet acquired the control of a company named Berkshire Hathaway. He dissolved the firm in 1969 and focused on the development of Berkshire Hathaway. According to the Forbes Global 2000 list and formula, Berkshire Hathaway is the largest financial services company by revenue in the world.
As of July 2019, his Net worth is US$82 billion.
Warren’s portfolio includes the stocks of Bank of America, Wells Fargo, Coca-Cola, Kraft Heinz, Apple and many more.
Some of his investing strategies are:
1. Make a list of criteria to buy a stock
Always prepare a list of certain criteria before investing in any asset. Some criterion could be price, industry, earning ratio, etc. Price should not be the sole criteria for making an investment. This will save you from ending up investing in something unfavorable. It just a matter of time when great companies end up taking a price dip because of the market situation.
2. Research about companies you want to invest in and familiarize with them
It is important to be familiar with the companies you invest in. It will help you in staying updated with them and stay current on industry trends. Your investments should not be based on other people advises or tips. If a company interests you, it won’t hurt much to do a little research about the same to know how it makes its money. Your friends or family might be doing good after investing in a certain company. If the same interests you, go ahead but only after you familiarize yourself with the company’s trends.
3. Sell at the Right Time
Investors often have their reasons for investing in a certain company. They meet their expectations or criteria. However, most investors make the mistake of holding on to companies even when they no longer match their reasons for buying. He follows this rule diligently. When the company does not meet his criteria, he immediately sells its stock.
4. Follow your companies
Investors should always follow their companies and stay updated about them. Warren advises investors to follow their companies on a monthly basis rather than on a daily basis.
5. Never settle
Warren advises his followers to be aggressive during tough times. No matter how bad the economy is one should always keep looking for opportunities. The economic condition will eventually turn around and investors will end up gaining. The idea is to never settle if you are a long-term investor.
6. Don’t panic about the day-to-day Market Movements
Buffett says that one should invest in a stock if he/she is comfortable holding on to for a decade. And in that case, there is no point worrying about minor setbacks. Stock prices keep changing. And in a time of 10 years, it will certainly change. Instead, investors should focus on learning the potential growth of the company over time.
George Soros
George Soros is an investor and a philanthropist who began his professional career by working as a clerk at the merchant bank Singer & Friedlander of London. As of November 2018, he had a net worth of $8.3 billion. In 1970, he founded Soros Fund Management and currently serving as its chairman.
A few of the companies which are a part of his financial portfolio are eBay Inc, Colgate-Palmolive Co, Alphabet Inc, Visa Inc, and Allergan PLC.
His name has become popular among various conspiracy theories against the world accusing him of being a “master manipulator” of global politics. There have been other accusations as well, however, there is no solid evidence against any of such accusations. It is mainly because of his support for progressive causes that made him the object of all these conspiracy theories.
Some of his investing strategies are:
1. The “reflexivity” theory
The reflexivity theory is one of his primary investment strategies. This theory is based on assessing the value of assets based on market feedback. In simple terms, this theory states that investors’ perception of a particular asset is not based on reality but their perception of reality. Soros even uses this theory to predict promising market opportunities. In the world of economics and finance, Soros is believed to be the proponent of this theory.
2. Scientific method
Soros makes use of scientific methods to make his moves. He creates a strategy based on current market data to predict the occurrences of the financial markets. He first makes small investments based on the strategy. And if the same proves positive, he broadens his investment.
3. Physical Cues
This may sound a little superstitious, but being such a successful investor, this is worth sharing. He often takes hints from his body. He has even abandoned certain investment options due to a headache or a backache. He advised people to listen to their bodies once in a while.
4. Invest on the basis of risk-reward probability
Every investment has a risk-reward ratio for there is no reward without any risk. There are many factors responsible for a fall in prices of stock like performance of the company, performance of competitors, analyst ratings, government moves, etc. It is important to assess the probability of risk-reward before making an investment. There are various ways of assessing the reward-risk ratio like reading analyst reviews, reviewing the company’s public filings and or through developing own financial projections about the company. It is always advised to invest in an asset in the risk-reward ratio of 3:1 or higher for it will ensure an upside potential three times the downside potential of the stock.
5. Having a disciplined investment process to cut Investment Losses
Even great investors like Soros can be wrong sometimes despite all the research and analysis. It is not necessary that you always make the right decisions, however having a disciplined approach to your investment process will save you cut investment cost and make money in the long-run. This could be done by having your principles and strictly following the same. One such example is having a threshold limit for selling the stock and strictly following the same.
Carl Icahn
Carl Celian Icahn is an American businessman, investor, and philanthropist with a net worth of $17 billion as of Sept. 2019 as listed by Forbes Magazine.
He is the founder of the conglomerate holding company Icahn Enterprises, which was formerly known as American Real Estate Partners. Icahn began his professional career in 1961 by working as a stockbroker in Wall Street.
Some of the companies forming a part of his portfolio are CVR Energy Inc, Occidental Petroleum Corp, Herbalife Nutrition Ltd., and Caesars Entertainment Corp.
Let’s take a look at his investing strategies:
1. Understand your company and be a value investor
An investor should not just be a speculator investing money here and there on the basis of his/her speculations. When Carl Icahn invests in a stock, he considers it as buying a share in the business. He takes an effort in learning and understanding the business he invests in. Mere being a speculator is not going to help you become a successful investor. Try to be a value investor rather than a speculator.
2. Strike a balance between acting impulsively and not acting at all
Carl Icahn strictly follows this rule. According to this investment strategy, it is important to be patient in your daily dealings and to be highly aggressive when it is time to perform. Opportunities do not come to us, we need to create them.
3. You can be both long-term and short-term investor
Many successful investors often attribute their success to long-term investments. Their portfolio consists of a higher percentage of long-term investments while keeping active trading to a bare minimum. However, Carl believes that an investor can be both a short-term trader and a long-term investor. Carl portfolio consists of more short-term investments. He teaches us that taking a few short-term risks for profit is not a bad decision.
4. It is important to enjoy what you do
This holds true for every profession. Even for investment. In order to be successful, we should love what we do. Similarly, to be a good investor, one should enjoy the process rather than just being focused on the reward. If you are passionate about the calculations, research and hunt to look out for good investment opportunities, you are bound to be successful. Because let’s face it, mere speculations are not going to take you a long way in this game.
5. The herd mentality
Carl always discourages investors to follow the herd mentality. He warns that if something is currently popular among the masses, it is bound to be wrong. He advises investors not to follow popular trends, as it will eventually fall apart and land you in ruins. Carl often invests in the shares of companies that are not currently popular or out of favor. If you can make the right calls, the gain is yours. One of his popular quotes is “Be greedy when everyone is afraid. And be afraid when everyone is greedy”.
Conclusion:
It is quite evident that some of the above-mentioned strategies are contradictory to each other. Ultimately the final decision to apply certain strategies depends solely upon the investor. These principles could only give an idea on how to approach. Choosing a strategy is very much similar to choose the assets to invest. One strategy that works for you might not work the same way for another. Hence, there is no best strategy. Your best strategy is the one that suits your requirements and objectives.
This article was originally published on Revolutionary Entrepreneur.
