Whatever the field of interest, it is natural for a devotee to look at the qualities of already highly successful participants, analyze those qualities, and then try to simulate them into his own life. Whether it is sport, cooking, motor racing, or any area where those that excel reap high rewards, much can be gained by examining top performers and setting targets to beat their performance.
The world of investing is no different in this regard to any other. Just as there are heroes in sport, there are heroes in the investing community: investors who seem to have the Midas touch, and consistently beat the markets. But who are the top 5, and how do they do it?
Jim Simons founded his private investment firm, Renaissance Technologies Corporation, in 1982. It is now one of the world’s most successful hedge funds and over its lifetime has made an average annual return of 30%. Renaissance is one of the most active investment firms in the marketplace today, perhaps because of its trading philosophy.
Simons trades in easily tradable instruments, and selects buy and sell opportunities by reference to complex mathematical modeling, analyzing price movements to predict future price direction. In other words, his trading methodology relies on scientific modeling, and removes all emotive reasons to buy, sell, or hold.
David Tepper looks for value where others see none. The distressed debt specialist founded Appaloosa Management in 1993, and the company now has around $4 billion under management. His interest in making money investing was fostered by his father, who traded stocks in Pittsburgh. He actively looks for companies that are on the verge of bankruptcy, and buys their debt securities. In times when such opportunities are few and far between, he invests in distressed industries (such as the housing and construction sector in the last few years).
Like many prominent investors, Tepper also has a philanthropic outlook, and donated $55 million to Carnegie Mellon University, from where he gained a Master of Science in industrial administration in 1982. Tepper’s best single year came in 2003, when his distressed debt investments made a return of 148.82%. In its lifetime to date Appaloosa has suffered three loss-making years, and its average annualized return is 29.5%.
Prem Watsa immigrated to Canada from India, where his parents were from a small Christian community. Watsa studied at what was to become the Ivey Business School, and worked several jobs before buying Markel Financial for $5 million in 1985. He renamed the company Fairfax Financial Holdings, and together with his friend Francis Chou used the insurance float of the company to invest and increase its worth, in much the same way as Warren Buffett at Berkshire Hathaway.
Again, like Buffett, Watsa invests in companies that he believes are fundamentally undervalued by the market and operates a passive, buy and hold investment strategy. Long term, Watsa’s Fairfax has made an annualized return of 23.5%.
Andreas Halvorsen was a platoon commander in the Norwegian SEALs before he moved to the United States. He graduated from the Stanford Graduate School of Business in 1990, and then took positions in investment banking at Morgan Stanley before becoming a senior managing director at Tiger Management LLC.
In 1999, Halvorsen became a founding partner of Viking Global Investors, where he is now the Chief Investment Officer for the company, running two equity hedge funds. His portfolios are diversified across sector and at company level. His investments have produced an annualized return of more than 22% since Viking’s inception in a moderately traded portfolio.
Robert Karr, like Andreas Halvorsen, is a devotee of Julian Robertson and was an employee at Tiger Management before setting up Joho Capital in 1996. Robertson’s investment philosophy was to go long of the top 200 companies in the world and short of the worst 200 companies in the world.
Karr’s Joho Capital is rather more concentrated in its investments, with a high proportion in the technology sector and invested predominantly in Asian markets, particularly Japan and China. Karr, again, is in the camp of a buy and hold strategy, that has seen annualized returns on his investments of over 22% since Joho’s inception.
These top five investors all make money on a consistent basis. They are driven and determined, though come from very different backgrounds: Watsa is an immigrant from a family who lived in a small rural town, while Tepper was bought up by a father who traded stocks in a big city.
Some have been within academia all their lives, whilst others, like Halvorsen, had careers far removed from a desk in an office.
All have had their investment heroes, whether that is an investor like Julian Robertson, Warren Buffett, or Benjamin Graham.
Some trade in focused and concentrated portfolios, some with a wide spread of international equities, others prefer debt instruments. Some turn their portfolio over at near lightning speed whilst others are happy to buy a security and hold almost to eternity.
But all have two things in common:
- They are focused on a goal and use disciplined trading strategies to invest money and achieve their aims;
- Secondly, they all have taken time to learn their profession, and then have kept learning throughout their careers, whether that is from trading mistakes or from watching and learning from the trading activities of their personal investment heroes.
Of course, perhaps the best known of investors in the world is Warren Buffett, and many would be surprised that he is not on this list. Known as the Oracle of Omaha, his Berkshire Hathaway has returned an average of 19.5% since he bought it in the mid 1960’s. A value investor, he is a keen advocate of Benjamin Graham’s investment methodology, and seeks out undervalued companies in which he can invest on a long term basis.