• THE WORLD’S •

99• GREATEST INVESTORS •

THE SECRET OF SUCCESS

MAGNUS ANGENFELT

The world’s 99 greatest investors is an entirely unique book – nothing like it has ever been published before.

In it the most successful investors in the world generously share their insights with the next generation of investors. Exclusively for readers, they reveal the experience they have gained from a quarter-century of successful investing. The conclusions are surprising.

For every investor there is a summary that describes his investment philosophy and style. And as well as excellent advice on what to think about before investing, there are insightful thoughts and ideas about life in general.

The book is written in an inspiring and accessible style that makes it profitable reading for both professional and amateur investors.

Magnus Angenfelt is an MBA and former journalist who has worked for over twenty years in finance, both in Sweden and abroad, first as a top-ranked analyst at Alfred Berg, and then as co-founder and CEO for the successful global hedge fund Manticore, a part of Brummer & Partners.

www. r o o s t e g n e r. s e

Foreword 8

A piece of cake 12

Conclusion 24

THE INVESTORSAbe, Shuhei 48

Akre, Charles T. 50

Al-Kharafi, Nasser Mohammed 254

Alperowitch, Fabio 52

Bacon, Louis 21

Boenawan, Kiekie 54

Bogle, John C. 255

Bolton, Anthony 56

Brierley, Sir Ron 58

Buffett, Warren 60

Carmignac, Edouard 64

Carret, Philip 66

Cooperman, Lee 68

Dalio, Ray 70

Davis, Shelby C. 72

Driehaus, Richard H. 74

Dunn, William 78

Englander, Israel A. 80

Eveillard, Jean-Marie 82

Faber, Marc 84

Farmer, Michael 86

Fisher, Ken 88

Fisher, Philip 92

Frère, Albert 94

Gabelli, Mario 96

García Paramés, Francisco 98

Gordon, Mariko 100

Graham, Benjamin 104

Grantham, Jeremy 106

Greenberg, Glenn H. 110

Hemvachiravarakorn, Niwes 112

Henderson, Ian 114

Henry, John W. 116

Hintze, Michael 118

Icahn, Carl 120

Janér, Kent 124

Jhunjhunwala, Rakesh 128

Kang, Bang-Chun 130

Kingdon, Mark E. 132

Klarman, Seth A. 134

Kovner, Bruce 21

Lampert, Edward 136

Livermore, Jesse 138

Loeb, Daniel 140

Lynch, Peter 142

Mandel, Stephen 21

Mansha, Mian Muhammad 144

Maple-Brown, Robert 146

TABLE OF CONTENTS

Marks, Howard 148

Mobius, Mark 150

Munger, Charles 152

Neff, John 154

Neilson, Kerr 156

O’Neil, William J. 158

O´Shaughnessy, James P. 160

Parikh, Chetan 162

Perry, Richard 164

Pickens, T. Boone 166

Price, Michael F. 168

Price, Thomas Rowe 170

Randel, Mikael 172

Robertson, Julian 174

Rocha, Bruno 176

Rodriguez, Robert L. 178

Rogers, Jim 180

Rogers, John 182

Royce, Charles M. 184

Ruane, William J. 186

Russo, Thomas A. 188

Schloss, Walter J. 190

Schreiber, Van 194

Seykota, Ed 196

Shaw, David 21

Simons, James H. 198

Simpson, Louis A. 200

Slater, Jim 202

Slim, Carlos 204

Smith, Donald G. 206

Soros, George 208

Sprott, Eric 210

Steinhardt, Michael 212

Stensrud, J. Kristoffer C. 214

Szombatfalvy, László 216

Tagliaferro, Anton 218

Templeton, Sir John M. 220

Tepper, David 222

Thorp, Edward O. 224

Tudor Jones, Paul 226

Van Den Berg, Arnold 228

Wahlroos, Björn 230

Wanger, Ralph 232

Watsa, Prem 234

Weitz, Wally 236

Whitman, Martin J. 238

Wilson, Robert W. 242

Woodford, Neil 244

Yacktman, Donald A. 246

Zulauf, Felix W. 248

Zweig, Martin 250

Özyeğin, Hüsnü 252

Thanks 256

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MARIKOGORDONUSA

People matter. A business is not some kind of random number generator for

Wall Street to play quarterly data bingo with. A business is run by people whose decisions are influenced by their past expe-rience, psychological baggage, and world-view. In small-cap companies, change cycles faster and one person can have a huge impact on results. We always find new leadership interesting because they bring with them a fresh perspective, espe-cially to an underperforming business that isn’t irretrievably broken. New leadership is almost always a harbinger of change, and ANY change is worth examining. Where there’s change, there’s opportunity. It is important to know the cultural DNA of a company? Was it dominated by a sales cul-ture, an engineering culture, a manufactur-ing culture, or a finance culture? There are pros and cons to each of these cultures. What wars have they fought (their last, most devastating experience will forever color their decision-making – the financial equivalent of the Maginot Line)? Pay atten-tion to the organizational chart. This helps determine the dominant culture and tells you a lot about how the business is run. In

companies that have been underperform-ing for some time, we can often see the root causes in the organizational chart.

Spend time learning how people are incentivized, and about the business’ com-pensation structures and governance. Pay attention to who is on the board, how long they have been there, and how they ended up there. Any changes to how peo-ple are rewarded will cause changes to their behavior – this is a flag that signals change and, one hopes, improvement going forward.

Numbers do not make the uncer-tain more certain; questions do. Do not be seduced by models and the false pre-cision that Excel creates. As investors trying to predict the future, we are no bet-ter than Madam Zelda the fortune teller. Forecasting is a messy, uncertain busi-ness, with a great deal of ambiguity. It is tempting to take comfort in what can be quantified precisely, but the real value of a spreadsheet is that it provides a deeper understanding of a business model – par-ticularly one that is changing or is unfa-miliar to the Street – and not in the “exact” quarterly earnings forecasts it spits out.

ANNUAL YIELD

13%for 18 YEARS

BENCHMARK 9%

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Think of a model as a series of compli-cated waterwheels that drive a large num-ber of interlocking gears – if you spend all your time fussing over the gearing ratios, you might not ask the important questions like: “what happens if there’s no water, if there’s a flood, or if there’s contamination in the water?” Understanding the context in which a business operates is critical.

For every hour spent on a model, you should spend at least two on understand-ing a company’s ecosystem, i.e. the world in which it functions.

One simple little thought exercise I do is to ask myself what would happen if a company vanished overnight. Would there be a disturbance in the force? Who would be affected? This helps me assess the company’s ‘moat’ and the value it has to its ecosystem.

Manage your psychological state. Keep an open mind, like that of a begin-ner. Approach each investment as if you know nothing. The world and businesses change faster than our mental models of them. To quote Robert Sutton, “have strong convictions, weakly held.” In order to make money you need to adopt a differ-

ent point of view – what are other inves-tors missing? You need to do this with conviction in order to develop a cast-iron stomach that allows you to stand up to the crowd and buy something unloved. However, you also have to recognize when you are just being stubborn and are, in fact, an idiot. You therefore have to be able to change your mind quickly when faced with evidence that you are wrong. Being an investor involves being wrong all the time – if you’re right more often that you’re wrong, and you make more money than you lose when you are wrong, you will be a successful investor. Nevertheless, that means being wrong more often than our ego would like. Sometimes the outcome is bad because of the process; sometimes the process was spot on and yet a bad out-come, mapped out as among the possi-bilities, happened. Track your sales and see whether they were good or not, and find out why. Sometimes the best thing you can do is buy back a stock you sold by mistake. For most investors, out of sight is out of mind, especially if a stock con-tinues to go up after it’s been sold. Track every action taken, the rationale behind

102 103

it, what was going on in the market, and your state of mind; you will see patterns. Leaving a paper trail creates intellectual honesty. Routinely check your investa-ble universe for what worked and didn’t work that you didn’t own. Take the big winners and losers and go back to a pre-vious point in time to see what the Street was saying at that time in order to under-stand what investors got wrong. Reverse

engineering is a great exercise for learn-ing how to spot the next cluster of mis-understood attributes and for learning where insight could have been gleaned. Stock prices are way more volatile than the underlying businesses, so managing your emotional state in order to separate your emotional response to a company’s fundamentals from that of other inves-tors is key to being a good investor.

BORN New York, USA, 1962

EDUCATION She majored in literature at Princeton University, graduating in 1983, and took night courses in finance.

CAREER Gordon entered the financial market in 1986 as an apprentice to a portfolio manager at Manning & Napier in New York. Next stop was a stint with legendary small-cap investor Chuck Royce (page 184) at Royce & Associates where she was given her first opportunity to man-age a portfolio. In 1990 she joined the start-up money management firm Valenzuela Capital Management. Five years later, Gordon started CastleRock Capital Management with zero assets under management. This became Daruma Capital Management in 1998 where she is both CEO and CIO.

INVESTMENT PHILOSOPHY Gordon is a small-cap equity investor who leans towards value. In contrast to most small-cap investors, who mitigate potentially erratic returns by diversifying and holding many positions, Gordon runs a concentrated portfolio of no more than 35 and no less than 25 small-cap holdings. She only selects stocks she believes have the potential to increase in value by 50% or more in the following two years. At the same time, there should be accelerated earnings growth and the upside should be three times the size of the downside. The turnover in the portfolio has been around 40% annually, and no position is allowed to be larger than 6% of the total.

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In terms of focus, Gordon says, “I’ll look at everything. It’s not like I have one or two magic things which are crucial to the investment process. We can’t, as investors, acquire a lifetime of expertise in every business domain, but we can seek to learn from those who have. For me, that means hanging out with supply chain experts at one confer-ence and digital marketers at another. In both cases, my hope is to learn what these folks pay attention to and use this to inform my own filters.”The best time to buy, according to Gordon, is not just when a stock offers good value, but when we can clearly define what will drive the price higher – in most cases this is better-than-expected sales, earnings, or cash flow growth. There do not appear to be any specific key figures which are more important than others. She can even buy lossmaking companies as long as they have positive cash flow. However, in-depth research is crucial to the process

The investment process is described in six steps: 1) generate new ideas systematically, 2) understand the past, 3) weigh up future out-comes, 4) define the investment thesis, 5) monitor portfolio holdings, and 6) sell based on price targets, new opportunities and portfolio risk.

OTHER Daruma Capital Management is named after a fifth-century monk who become the founder of Zen Buddhism and trained the warrior monks of the Shaolin temple in Kung Fu. Like Ray Dalio (page 70), Mariko Gordon has stated cultural rules for the company. Daruma manages $2.3 billion in assets, which also includes a hedge fund. Her favorite hobby is traditional hawaiian dance (hula).

Sources: Mariko Gordon, Daruma Capital Management.