By: Tim Melvin
It was Sir Isaac Newton who famously said, "If I have seen further than certain other men, it is by standing upon the shoulders of giants."
Those who came before us in life have left a huge treasure trove of knowledge, but it seems few ever take the time to study what those great minds have already learned.
Nowhere is this truer than in the markets, particularly when it comes to investing in the financial markets.
There have been some wildly successful investors who have been embarrassingly generous about sharing their secrets of making money, but almost no one takes the time to read the body of work.
The Legends And Their Myths
Most people know who some of these legends are but have never read the material. Most investors have heard of Benjamin Graham, but very few have ever read The Intelligent Investor, and even fewer have ever cracked the cover of Security Analysis.
Everybody knows who Warren Buffett is, but not many take the time to read his annual reports covering 50 years or so in his partnership with Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B). Those who would be great traders all know who Jesse Livermore was, but not too many realize their hero committed suicide and died broke from the last in his string of massive losses.
Investors would be well-served to read the works of the greats who came before them instead of just learning the superficial legends about some of the characters of Wall Street history. The story of George Soros breaking the pound or how Tony Saliba made a fortune trading seats during the crash of 1987 is fun, but it is not going to help you make a lot of money over your investing lifetime.
Everyone can offer up a quote or two from Warren Buffett, but it is the co-chair of Berkshire Hathaway, Charlie Munger, who has offered up some of the best investing advice.
"It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent," Munger once said. "There must be some wisdom in the folk saying: 'It's the strong swimmers who drown.'"
While everyone else is trying to figure out the new and fancy way to beat the market, Munger focuses on not trying to find the latest “edge,” but avoiding the wealth-destroying mistake. There are several books about Munger, and he has a treasure trove of annual reports from his chairmanship of WESCO Financial and the Daily Journal (NASDAQ: DJCO) that should be a must-read for investors who hope to earn high long-term returns.
Seth Klarman of Baupost is another legendary investor whom the majority of investors have never heard of and or read. Although his classic, Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor, is out of print, copies can occasionally be found around the Internet, along with copies of past letters to shareholders that outline his investing philosophy. While everyone worries less about beating the market and finding the opposite, Klarman tells us that exactly the opposite is more profitable.
"Interestingly, we have beaten the market quite handsomely over this time frame, although beating the market has never been our objective. Rather, we have consistently tried not to lose money and, in doing so, have not only protected on the downside but also outperformed on the upside," Klarman has said.
His books, interviews and shareholder letters are also must-reads for investors who really want to make money in the stock market.
Wisdom And Legwork
Charlie Munger gave us the best advice on how to stand on the shoulders of the giants of the investing world.
"If it is wisdom you're after, you're going to spend a lot of time on your ass reading. In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time," he said.
There is an incredible wealth of knowledge out there from investors who have earned enormous success, including Graham, Buffett, Munger, Klarman, Marty Whitman, James Montier and others who will help you become a much better investor.
The knowledge is there. It is up to you to do the legwork and read the information that has so generously been made available to you.
The industry continues to present opportunities for value-investors who can weed through the daily noise of the market. Learn about Banking’s Top "Insider Secret", known as the Great Bank Reduction.
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