Soros & Buffett Investment Rules
On the face of it, Buffett and Soros investment styles seem to have little in common. A new book suggest that both practice the same mental habits and strategies. They share similar beliefs about the nature of the markets.
In "The Winning Investment Habits of Warren Buffett and George Soros," its author outlines their 23 "winning" investment habits - tactics and strategies that he believes other investors can learn from. Many of these "habits" seem to fly in the face of conventional Wall Street wisdom: for example, Buffett and Soros do not diversify. And when they buy, they always buy as much as they can. Both will say that making predictions about the market or economy has virtually nothing to do with investment success.
Here's the list of 23 habits:
A master investor:
1. Believes the first priority is preservation of capital.
2. As a result, is risk-averse.
3. Has developed his own investment philosophy, which is an expression of his personality. As a result, no two highly successful investors have the same approach.
4. Has developed his own personal system for selecting, buying and selling investments.
5. Believes diversification is for the birds.
6. Hates to pay taxes, and arranges his affairs to legally minimise his tax bill.
7. Only invests in what he understands.
8. Refuses to make investments that do not meet his criteria. Can effortlessly say 'no'.
9. Is continually searching for new investment opportunities that meet his criteria and actively engages in his own research.
10. Has the patience to wait until he finds the right investment.
11. Acts instantly when he has made a decision.
12. Holds a winning investment until a pre-determined reason to exit arrives.
13. Follows his own system religiously.
14. Is aware of his own fallibility. Corrects mistakes the moment they arise.
15. Always treats mistakes as learning experiences.
16. As his experience increases, so do his returns.
17. Almost never talks to anyone about what he's doing. Not interested in what others think of his investment decisions.
18. Has successfully delegated most, if not all, of his responsibilities to others.
19. Lives far below his means.
20. Does what he does for stimulation and self-fulfilment - not for money.
21. Is emotionally involved with the process of investing; but can walk away from any individual investment.
22. Lives and breathes investing, 24 hours a day.
23. Puts his money where his mouth is. For example, Warren Buffet has 99 per cent of his net worth in shares of Berkshire Hathaway; George Soros, similarly, keeps most of his money in his Quantum Fund. For both, the destiny of their personal wealth is identical to that of the people who have entrusted money to their management.
Interesting stuff . . .
>
Source:
Inside the strategy of Soros and Buffett
JENNIFER HILL
The Scotsman, Sat 8 Apr 2006
http://business.scotsman.com/index.cfm?id=538662006
Becoming Rich : The Wealth-Building Secrets of the World's Master Investors Buffett, Icahn, Soros
Mark Tier
St. Martin's Press (April 1, 2005)
http://www.amazon.com/exec/obidos/ASIN/0312339860/thebigpictu09-20/
Sunday, April 23, 2006 | 07:33 AM | Permalink
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Comments
"22. Lives and breathes investing, 24 hours a day."
That pretty much nails it. Not my bag.
Posted by: cm | Apr 23, 2006 3:10:55 PM
Barry:
As you know from the book that tops your recommended reading list, they're not the only ones who fail to see "wisdom" in diversification.
Here's Gerald Loeb (p. 90, Market Wizards): "Diversification is an admission of not knowing what to do."
And Douglas Bellemore, p. 286, same book: "No investor who expects his portfolio to outperform the averages significantly and to provide major capital gains can practice broad diversification.
Posted by: pete Preissle | Apr 23, 2006 4:18:18 PM
My favorite form of diversification are the mutual funds with 200 positions . . .
Posted by: Barry Ritholtz | Apr 23, 2006 6:47:11 PM
But George Soros was never risk-averse. He was careful most of the time, but he also took huge risks regularly if he thought he was right.
To say he was risk-averse is to miss the man's talent by a mile.
Posted by: John Navin | Apr 23, 2006 7:06:22 PM
Risk averse...
I think this comment is misleading. Both men seem quite willing to take calculated risks. The calculation being excellent risk adjusted returns, with a desire to get into relatively low risk situations that offer strong returns. But that does not mean they won't take risks. Buffett bought a massive amount of silver, which is not exactly t-bills. But as time has shown, the volatility risk of the investment was worth enduring to obtain killer returns.
Posted by: Alex | Apr 23, 2006 10:08:08 PM
Barry:
GGGGGGGG
Posted by: pete Preissle | Apr 24, 2006 3:53:51 AM
Buffett and Soros both HATE losing money. So they'll only make an investment when they're sure the risk of loss is exceptionally low.
While Soros certainly appears to take big risks -- to us -- he knows what he is doing, which makes all the difference. For example, when he shorted the pound sterling he figured the most he could lose -- worst case -- was 4%. Okay, that's a a lot of money out of $10 billion! But just the same, a loss potential of 4% is way less than most investors (and traders) take.
In fact, in my experience few investors actually calculate the potential loss when they put money on the table.
Posted by: Mark Tier | Jun 15, 2006 5:21:20 AM
Morningstar does a good job of distilling the Buffet philosophy to 3 basic ideas:
1. "Wide Economic Moat" (can be a brand)
2. Margin of Safety (Discount to Intrinsic Value)
3. Eat your own cooking (Buffet has never sold a share although he will be giving some away soon)
Side fact: $10,000 invested in BRKA in 1965 would be worth $50 Million today
Posted by: Jim I | Oct 13, 2006 10:29:17 PM
Isn't is sad that the major brokerage firms totally subscribe to asset allocation and collect 1% to 2% annual fees and all along realize the investor will end up with average returns. In my opinion, performance no longer counts with the major brokerage firsm and it's strictly how much money does the broker have under management and what kind a fee can they assign. They better hope this article about Buffett & Soros believing diversification is for the birds doesn't end up with their clients reading it.
Posted by: Pat | Feb 20, 2007 2:25:59 PM
Interesting list, thanks for posting.
Posted by: Hamed Elbarki | Apr 16, 2008 6:52:09 PM
