August 20, 2020
Joe Fairless

Standing on the Shoulders of Giants

Whether you want to build generational wealth or learn about passive investing, your success will be determined by how much you know. If you are just getting started, you should take time to learn from famous investors like Warren Buffett, John Bogle, Carl Icahn, Peter Lynch and Thomas Rowe Price Jr. These investors have become legendary because of their ability to control their emotions, find long-term investments and learn from their mistakes.

Learn Important Lessons From the Financial Greats

Back in 2008, Thomas Thwaites was inspired by an author who said that a single man could not rebuild a toaster if he was left to his own abilities. Thwaites bought the cheapest toaster he could find to see if he could replicate the entire machine on his own. He discovered that it contained more than 400 parts and 100 different materials. Even though he eventually limited his goal to only recreating five components, Thwaites still ended up mining his own iron ore and mica. The completed toaster melted immediately after it was plugged in because the wires lacked insulation.

As this nine-month journey shows, mankind has learned from the past and developed intricate systems for working together. A single individual cannot make a toaster alone, but they do not have to. Instead, we work together and learn from the achievements of other people. When it comes to financial matters, you can flatten your learning curve by studying the successes and failures of top investors.

Pay Attention to the Details

John Bogle is known for founding the Vanguard Group in 1974. Before he created Vanguard, Bogle developed the idea behind index funds. He realized that few investors could outperform the overall marketplace over the long run. Even when a mutual fund had world-class analysts, it had to charge large fees to pay its analysts. Because of these fees, the best mutual funds still earned less than the general marketplace over the long run.

As a result of his research, Bogle created index funds that invested in the marketplace at large. Because there were no stock pickers, Vanguard’s index funds could charge surprisingly low fees. Today, these funds are a perfect example of passive investing. Instead of having to constantly research stocks, you can buy an index fund and forget about it.

Bogle shows the power of passive income and the importance of details. His revolutionary approach to investing was only possible because he spent time researching commission rates, fees and average earnings per share. As a result, he was able to create one of the world’s top mutual funds.

Be a Value Investor

In 2020, news came out that oil was trading for less than $0 because of a lack of demand. Speculators were trying to unload futures contracts because they only wanted to invest in the security and did not want the underlying asset. While the decline in oil prices was fueled by the start of a recession and black swan events, the situation shows an important lesson. When it comes to buying an investment vehicle, it is important to focus on value and the underlying asset.

Carl Icahn was famous for focusing on value whenever he made an investment. He understood that stocks were not just documents. They represent shares of an actual company. Because of this, Icahn never invested in a company’s stock unless he believed the company was worth investing in.

Thanks to his focus on value, Icahn took an active role in the companies he invested in. He became famous for hostile takeovers. After taking over a company, he would work to improve the company’s value. Because he was known for this approach, the stocks he purchased enjoyed an Icahn lift because other investors would purchase them as soon as they heard Icahn was interested.

Create Long-Term Investments

Warren Buffett is also known for buying investments based on the company’s value. Since he first created Berkshire Hathaway in 1965, he has become one of the richest men in the world. Known for his discipline and patience, Buffett is famous for taking a long-term approach to stock ownership.

Buffett is fond of saying that his favorite holding period is forever. He does not speculate about which stocks will be profitable tomorrow or next week. Instead, he looks for undervalued companies he can keep for years or decades. Because of this approach, an investment of $10,000 in Berkshire Hathaway in 1965 is worth $50 million today.

Do Your Research

Thomas Rowe Price Jr. and Warren Buffett share many of the same features. They both took a disciplined, long-term approach to investments. Price is also known for doing in-depth research before buying shares in a company. Unlike other investors of his era, he focused on going against the crowd to invest in companies over the long run. He believed that financial markets were cyclical, so stock prices would always rise again.

Like Price, Buffett is famous for the intensive research he does on each investment vehicle. One of the best pieces of investment advice he gives to new investors is to learn about accounting. Whether you are focused on real estate or wealth building, accounting knowledge will help you research a company and determine how financially sound it is.

Focus on What You Understand

One of the reasons why people get fooled by Ponzi schemes is because they are willing to invest in something they do not understand. They may think that the Ponzi scheme is supported by the sale of a product or service, but the real revenue is driven entirely by new investors. To build wealth, investors must do their research and invest in things they understand.

Peter Lynch was a good example of this approach. From 1977 to 1990, Lynch was the head of the Fidelity Magellan Fund. During his tenure, the fund grew from $20 million to $14 billion in assets. The fund gained an impressive average return of 29 percent each year. Additionally, it beat the S&P 500 Index for 11 out of 13 years.

Lynch achieved this success because he was able to adapt to different investment styles. He never picked stocks that he did not easily understand. Some of his best stock ideas came from going to the grocery store or chatting with loved ones.

After finding an opportunity, Lynch would spend time researching it. For example, he would consider the price/earnings to growth (PEG) ratio. This ratio shows the level of expectation built into a stock. Ideally, these companies would also have a strong cash position and a low debt-to-equity ratio.

How You Can Learn From Great Investors

If you are interested in building generational wealth, you need to start learning about wealth building from the greatest investors in history. These investors did not pick one successful stock or create a single company. Instead, they became famous for consistently beating the overall marketplace. By learning from the greatest financial minds in history, you can enjoy some of the following benefits.

  • Secure your retirement future.
  • Get dividends and a return on your investment.
  • Reduce your risks.
  • Boost your earning power.
  • Earn passive income.
  • Gain peace of mind.
  • Build wealth you can pass on to your children.

Read Books

If you do not have time to take a course, you can always read books from financial experts. You can also invest in books on specific topics like real estate and passive investing. Beginners should read books about financial concepts and accounting terms. Many websites also offer tutorials, glossaries and guides to different financial topics.

View a Company’s Shareholder Letters

You can make your learning process easier. Some of the world’s best investors publish their thoughts on investments online. Warren Buffett has released his annual shareholder letter each year since 1977. In the letters, you can see updates about Berkshire Hathaway and his outlook on the world’s financial situation.

Watch Videos

If you are a visual learner, you can watch videos as well. Other than documentaries and how-to videos, you can also watch interviews with world-class investors. Some investors also offer courses and conferences on wealth building.

Take a Course

There are thousands of courses you can take to learn about investing. These courses are available online and offline from accredited universities and non-accredited organizations. With these courses, you can learn about specific topics or get a broad overview of the industry.

Once someone becomes a successful investor, they are still not done with their education. Warren Buffet spends around five to six hours a day reading newspapers, books and corporate reports. While Mark Zuckerberg reads a book every two weeks, Elon Musk used to read at least two books a day while he was growing up. Meanwhile, Bill Gates reads 50 books a year.

Even though all of these individuals are at the peak of their careers, they still devote a significant amount of their time to learning new information. Companies, economies and stock markets are constantly in flux. By devoting your time to learning from top investors and educating yourself about the marketplace, you can begin building wealth that you can pass down to your descendants in the future.

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

Share this: