What makes a good investor? Is it luck? Genetics? Excessive evaluation of markets?
While there are many theories out there as to why some investors become billionaires while others end up courting Chapter 11, the world’s most successful investors seem to have one very unique practice in common – the confidence to stray from the crowd, avoiding the bandwagon effect that so many individuals don’t have the courage to snub. And of course, they have all received formal business education. Successful investors like Peter Lynch and Vinod Kohsla both have MBAs and Warren Buffett has a Masters in Economics from Columbia. It could be possible that business education teaches students to think outside the box after all, but most importantly it accesses the basics that provide the groundwork for successful investing. Let’s take a look at how some of the world’s best-known and accomplished investors have gotten to where they are today.
Warren Buffett
This is a household name. Even those who know absolutely nothing about commerce and its related fields have heard of Warren Buffett. The 76 year-old Nebraskan had a real business mind from the get-go, purchasing his first shares at age 11 and filing his first tax return at age 13. The Chairman of the Board of Berkshire Hathaway, which owns large holdings in companies such as See’s Candies and Fruit of the Loom, is the second richest person in the world, behind his friend Bill Gates.
Over the years many analysts have reviewed Buffett’s business sense in an attempt to uncover just how this knowingly modest man has built his empire of wealth. The main answers to this question don’t seem particularly complex. Warren always thinks long-term when it comes to investing, and he really is a free-thinker. Instead of following investment trends by investing in specific companies or industries that the media has made out to be particularly attractive, Warren turns upstream, investing in what other people see as the underdogs. He bets on companies his counterparts wouldn’t blink at – those with a low overhead that he sees as having high growth potential. It didn’t take him long to make a fortune out of what he determined to be undervalued companies. Mr Buffett has another habit – he supports only companies he feels he really understands - truly tangible, visible products like Coca Cola. When everyone was diving into the technology arena, the technologically unsavvy Warren went for products he felt he could really ‘touch’ – like American chocolate retailer See’s Candies.
Warren Buffett has a great interest in MBAs, and has lent a hand on many occasions. He often visits business schools like Tuck and Chicago GSB to speak to future MBAs while challenging them. Often he asks the students to try to sell potential investments to him, as a sort of training game that in reality could actualize. And his career advice to future MBAs? Do what you love now and don’t take a certain job because you think it’s what you should do.
Peter Lynch
Just like Warren Buffett, Wharton MBA Peter Lynch avoided gathering trendy stocks the rest of the investors were jumping on. Like Buffett, Peter also thinks the most potential lies in the unfashionable stocks. But that’s not it. He sticks to a plan – a plan he is known to enforce at investment conferences. What is surprising is that the points he expresses seem nothing but obvious (especially to an MBA) once you hear them. Concepts like “knowing what you own” and “learning from mistakes” are far from revolutionary tactics, but many investors who think they’re experienced often don’t know the basics.
A more unique aspect of investing which may set Mr Lynch apart from the rest is his disinterest in attempting to predict the economic forecast of the future. But this doesn’t mean Peter devalues knowledge. He is once said to have explained, “You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets.” You obviously need to know the basic ins and outs of the marketplace, and business education can provide you with such fundamentals. Whatever his strategy, it works. As Manager of the Fidelity Magellan Fund, he grew the fund’s assets from $20 million in 1977 to $14 billion in 1990.
Vinod Khosla
Stanford MBA, co-founder of Sun Microsystems and star of Kleiner Perkins Caufield & Byers, billionaire Vinod Khosla has taken a progressive approach to investing. Knowing what we all know about climate change, he got back down to grassroots. His investment strategy this time was to focus on making the world a greener place, first off by investing in companies researching and developing solar electric technology and ethanol usage for fuel, amongst other ‘green’ investigations.
In 2004, Vinod created Khosla Ventures in order to nurture entrepreneurs, particularly those wishing to mobilize environmental initiatives to both grow capital and save the planet. And successful he is. Vinod Khosla regularly makes Forbes’ lists of the world’s richest people and the most successful venture capitalists.
If anything can be learnt from Vinod’s accomplishments it is to put your money where your mind is, and to look at social and political trends. Capitalism isn’t just a numbers game, but about evaluating issues that affect us socially, and actually propelling such matters to improve our world while making a profit.
Of course there are many exceptional investors who never attended business school, but if we look at Buffett, Lynch and Khosla’s success, we can gather that postgraduate business education is likely will/to do much more harm than good. As Nunzio Quacquarelli, Director of the QS World MBA Tour, explains, “while there are many successful investors who have never taken a business course, your chances of making it big in the investment world will obviously increase if you’re well versed on a wide range of business matters, and from what we’ve found from the top investors, the basics really matter.” Those basics, taught in business courses and MBA programs can obviously go a long way, and with some very creative thinking and a little luck prosperity may come your way.
The Essays of Warren Buffett: Lessons for Investors and Managers
(L.A. Cunningham)
The Intelligent Investor (Benjamin Graham)
One Up on Wall Street (Peter Lynch)