2 of the Best Money Managers of all time (and How to Apply their Advice)

2 of the Best Money Managers of all time (and How to Apply their Advice)

 

Warren Buffet famously said the following quote about investing – “Rule No. 1: Don’t lose money. Rule No. 2: Never forget Rule No. 1”.

This seems like a simple rule, but in the investment world, an absurd number of people lose money all the time. They may fall into the pitfalls of scams (Ponzi-type scams are especially scary), took the wrong ‘hot tip’, or simply placed too many eggs in one bad basket.

We get it. Investing can be scary. That is why a lot of people enlist the services of money managers to help them make good investment choices. Good money managers understand and apply risk management in order to safeguard their clients’ wealth. They make a modest, but healthy return on your investment. Great money managers, on the other hand, are hard to come by – they are the ones who can produce consistent and high returns by sticking to their own investment philosophies.

Here are 2 best money managers of all time and how to apply their advice to your investments.




Peter Lynch

Peter Lynch has a huge claim of fame – he managed the Magellan Fund in Fidelity Investment, the best performing mutual fund in the world. It’s not hard to give him the title, because the Magellan Fund averaged an astonishing 29% annual returns between 1977 until 1990. Needless to say, he was very popular. When he retired, he made front news of the Wall Street Journal.

Peter Lynch’s top advice: When picking stocks, “invest in what you know”.

How to apply this advice to your investment:

The “invest in what you know” advice is actually a humble acknowledgement and assurance to individual investors – your familiarity within your own industry can help you pick winning stocks. This way, you’d know (before anyone else) which companies have the potential to exponentially grow. You can assess this by finding out whether a company have the good management needed to carry out their business plan. Obviously, being in the industry yourself, you will know who’s who and the general trends of consumer demands better than anyone else, allowing you to pick undervalued stocks worth owning.

25 year after he retired, Lynch maintains the same advice for investors.

If you are an ambitious reader, you learn more from his three books: One Up On Wall Street, Beating the Street, and Learning to Earn. Many of his investment methodology and approach was explored in-depth through his writing work.

George Soros

Unlike Peter Lynch, who believed in long-term results via mutual funds, George Soros is a short-term hedge fund investor. Through the Quantum fund at Soros Fund Management, he delivered an averaged annual returns of over 30% per annum. He is considered the best hedge fund manager of all time.

George Soros, for lack of better word, is an overconfident and gutsy investor. As a speculator, he made bold ‘all-in’ choices, which is hard to copy for the average investor. He is most known as ‘the man who broke the Bank of England’ when he made USD1 billion for shorting the pound sterling in 1992, however he also made big losses through stocks (he bought a big chunk of Bear Stearns stocks, which fell from $54 to $2 per share).

George Soros’ top advice: “The financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.”

How to apply this advice to your investment:

If there is one thing you should know, this is it: George Soros don’t really look at the markets – he looks at the different economic and political situations that affect the market. He also takes into consideration the irrational human behaviour which tends to move in herd mentality. Investment-wise, the impact of herd mentality is magnified by the number of people who is affected by it. As such, he made his killing on currencies and bonds (something affecting millions of people, rather than thousands of people).  

For the average investor like you and I, George Soros-style short-term investments are highly risky. After all, ‘market is unpredictable’ and ‘go all-in’ do not go hand in hand. If you are not good or confident at assessing economic and political impact, you can rule out the George Soros investment style – it is definitely not for you. This is not a bad thing. In fact, it is good to know that this investment style is an exception rather than a norm.

Conclusion

Exceptional money managers such as Peter Lynch and George Soros may have different investment styles and made their money in different ways, however they both have this in common: you should know something (your industry/ economic and political situation) before investing. After all, picking investments without knowing anything is called another name, and that is ‘gambling’.

The deeper you know about the subject matter, the better. These two men knew a lot, which helped them make great investment choices. So here is a great investment advice, as a conclusion: learn more about your investments!




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