How do they do it?

Peter Lynch, Ray Dalio, Benjamin Graham, Bill Ackman and Warren Buffett, these are names of some very successful investors. Each of them has their own unique approach to investing, but there are some things they have in common. In theory, these things are easy to copy and can be applied by anyone. In reality, investors fail over and over to do so. These things are: Long-Term Focus, Independent thinking, Focus on Value and Discipline. Sounds easy enough. So, what is the problem and why is it so hard to follow such easy guidelines that have been proven to be successful over and over again? 

Long-Term Focus

Everyone usually understands that the long-term approach is the best and often most successful approach for a retirement savings account. That is until markets have a downturn. Despite market downturns are being part of the existence of market gains, all of a sudden strategy is questioned, the company is questioned, and the advisor may not be the right guy after all. This could be all true and sometimes it is wise to change, but in most cases, it isn’t and switching things around based on 1-3 year returns can easily contribute to harming your overall approach. Even longer periods, like the 5-year period we just went through can send some very misleading signals about a strategy. Returns are very important, but short-term returns are not always an indicator of the quality of your portfolio. There have been equities that are great companies for the next 3 years and beyond but have fared much worse through 2022 and have temporarily dragged down the 3 and 5 year return averages of whole portfolios. As tough as that is, it should not change someone’s long term strategy and these companies should be part of any growth portfolio. The most important thing for your investment planning is not the company you are with or the 1,2,3-year returns. The most important thing is the content of your portfolio. Time after time, during or after some volatility in the market, many attempt to change the frame without really considering what’s under the hood.  

Independent Thinking and Focus on Value

Successful investors are not swayed by popular opinion or short-term market trends, and they are willing to go against the crowd when they believe that they are right. Their strategy of buying more during tough economical conditions has been paying off tremendously. There are 3 basic rules to come out on top. Look for companies with a durable competitive advantage. Look for positive projections long term out, revenue, earnings per share, forward cash flow and equity. And finally, patience.  I have written about this before; media is the biggest culprit in contributing to investors failures. Media preys on people’s emotions that are usually running high when markets are running low. Focus must be on the underlying value of the companies you are investing in, not all the noise around it.  

Discipline

That’s the toughest one. When markets go through their downturns, many investors feel urged to do something. Trying to time the market by wanting to get out when things are down or move in and out of cash can be very destructive to your strategy and your bottom line. Before you make any decisions like that, you should find out what your portfolio is invested in, and what the long-term outlook is for these companies and securities. 

There is one more thing Peter Lynch, Benjamin Graham, Bill Ackman and Warren Buffett have in common, they are no ‘one hit wonders’. There are people out there that are celebrated for making one significant right call, despite the fact that it was 50/50 odds and they haven’t called many things correctly since then. Nobody can predict the markets, including these 4 guys, but it has been proven that by following their approach, chances of success tremendously improve.