Lessons from Legendary American Investors to Help Shape an Investing Strategy

April 12, 20239 min read
Lessons from Legendary American Investors to Help Shape an Investing Strategy
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Key Takeaways

  • When it comes to the growth vs. value debate, even the most successful American investors have differed on the merits of these disparate investment strategies.
  • As demonstrated by the successes of the legendary investors profiled here, it is possible to do quite well pursuing either strategy.
  • The key is to be mindful of individual investment goals, time horizons, risk tolerances and personal ambitions.

Investments considered to have the potential to outperform the market in general over time are referred to as growth stocks. Meanwhile, securities in companies that are currently trading for considerably less than their perceived worth are referred to as value stocks.

When it comes to the growth vs. value debate, even the most successful American investors have differed on the merits of these disparate investment strategies. As for determining which method is better, it may be useful to consider the lessons from legendary American investors to help shape an investment stratagem.

With that in mind, here are the approaches of some of the most notable investors in history.

Charles Brandes (1943 -)

An adherent to the Benjamin Graham School of value investing, his company, Brandes Investment Partners, currently has over $28.9 billion under management. Since the firm’s establishment in 1974, Brandes has applied the value investing approach pioneered by Graham to security selection. His firm was also among the first to bring a global perspective to value investing. The theory of value investing holds that the market should ultimately appreciate the true worth of a company and its price should climb toward its inherent value over the long term. This amalgamation of rational fundamental analysis and the self-restraint to benefit form market price illogicality allows his firm to home in on good long-term outcomes.

Warren Buffett (1930 -)

One of the best-known fundamental investors in the world as a result of his enormous accomplishments, Buffett has directed Berkshire Hathaway since he founded the company in 1970. A steadfast advocate of value-based investing, Buffett focuses on publicly traded equities in companies that display concrete rudiments, robust earnings, and the prospect for sustained growth. Noted for the democratization of his value investing philosophy, Buffett also favors companies that issue dividends and do business with transparency.

David Dodd (1895 – 1988)

An acolyte of “the father of value investing” Benjamin Graham, Dodd was also collaborator with Graham at Columbia Business School. In fact, people often use the terms “Graham and Dodd,” “value investing,” “margin of safety,” and “intrinsic value” interchangeably when discussing Dodd’s methodology. Graham and Dodd’s system for recognizing and purchasing securities valued well below their true worth provides a sensible foundation for investment choices to this day.

Philip Arthur Fisher (1907 – 2004)

One of the early proponents of the growth investing strategy, Fisher is author of Common Stocks and Uncommon Profits. His guide to investing has been in print since its first edition debuted back 1958. With an investment stratagem concentrated on groundbreaking enterprises propelled by research and development, Fisher pursued long time horizons, and endeavored to acquire equities in great companies at sensible prices. He believed a stock that is undervalued by as much as 50% could only double in price once it achieved its full potential. As a result, he pursued more significant results by taking positions companies he believed would outperform the overall market given sufficient time.

Benjamin Graham (1894 – 1976)

The “father of value investing,” Graham authored a pair of the establishing writings on neoclassical investing: Security Analysis (1934) with David Dodd, and The Intelligent Investor (1949). Graham stressed making investment decisions based upon investor psychology, fundamental analysis, and concentrated diversification. He also advocated taking on minimal debt and buying and holding securities purchased within the margin of safety. Graham was also a pioneering proponent of activist investing and contrarian mindsets. His efforts are credited with initiating value investing within mutual funds, hedge funds, diversified holding companies, and other investment vehicles.

Joel Greenblatt (1957 -)

Greenblatt’s tome, The Little Book that Beats the Market, initiated the “magic formula investing” technique for deciding which securities to purchase. Greenblatt’s thinking centers upon buying “cheap and good companies” with high earnings yields and a high return on invested capital. His company, Gotham Funds, crafts long and short stock portfolios with an emphasis on valuation. The firms’ approach is to endeavor to accurately value U.S. large and mid-cap companies to get into them at greatest possible discount, based on its assessment of their value. Greenblatt also looks for opportunities to short companies that appear to be overpriced, based upon the same sort of assessments.

Max Heine (1911 – 1988)

Heine began his career purchasing distressed railroad securities, after carefully studying Benjamin Graham’s Security Analysis. Having analyzed the value of their land, equipment, scrap metals and the like, Heine based his assessments of their total value. Investing accordingly, he realized a significant return. This “deep value analysis” thereafter guided his approach, upon which he founded Heine Securities as an investment management company. One of his leading products—the Mutual Shares fund, founded in 1949—is still numbered among the Franklin-Templeton offerings. Moreover, it continues to pursue Heine’s philosophies of deep-value and distressed company investing.

Irving Kahn (1905 – 2015)

Holding the distinction of being the oldest living active investor at the time of his death in 2015, Kahn was another investor who adhered to the Benjamin Graham school of value investing. For Kahn’s first trade, he shorted a copper mining company, just before the crash that led to the Great Depression in 1929. Irving Kahn looked for equities being offered at a deep discount that were being ignored. However, a company had to possess little or no debt and be led by a management team that also owned stock in the company. The company also must have had a fundamental driver capable of subsequently creating investor interest from which he could profit when the stock attained its true value.

John Neff (1931 – 2019)

Considered one of the most successful proponents of value investing. Neff’s efforts shaped the Windsor Fund into the most prosperous mutual fund ever to exist. John Neff’s approach centered upon a low price-to-earnings (P/E) methodology. He favored digging into a company, its management, and its books before taking an investment position. His strategies entailed relatively high turnover with an average holding period of three years. Neff also concentrated on forecasting the economy and extrapolating future earnings of a concern based on his prognostications. He preferred investments with dividend yields in the 4% to 5% range.

Walter Schloss (1916 – 2012)

Another Graham acolyte, Schloss started his investment firm in 1955 and averaged a compound return of 15.3% over the course of 45 years. Even more impressive was the annual compounded rate of 21.3% he achieved between 1956 and 1984. Schloss looked for companies that were vastly underperforming with valuations reflective of that fact. Simply put, he was a bargain hunter. His thrift-oriented approach and the successes he attained using it demonstrate a very basic and sound style of investing. Schloss was also a dedicated proponent of portfolio diversification, sometimes holding as many as 70 stocks at a time.

John Templeton (1912 – 2008)

Creator of the eponymous Templeton Growth Fund, which averaged 15% annual growth for 38 years, John Templeton is known as a pioneer of emerging market investing. During the Great Depression, Templeton had his broker purchase 100 shares of each NYSE-listed company, which was selling for less than $1 a share. The U.S. economy rebounded as a result of World War II and increased Templeton’s wealth exponentially. His post-war strategy centered upon globally diversified mutual funds, which saw him benefit tremendously from the emergence of the Japanese market in the 1960s. A fundamentalist, Templeton eschewed technical analysis. He also was known for taking profits when values and expectations were high, which is when most investors choose to hold on to their positions.

Geraldine Weiss (1926 – 2022)

Co-founder of the Investment Quality Trends newsletter, Weiss has been referred to as “the Grande Dame of Dividends” as well as “The Dividend Detective” for her unconventional value approach. Another Graham apostle, Weiss valued a company’s dividends over its earnings. In other words, her investment strategy scrutinized a dividend’s yield to determine a company’s value. In Weiss’ estimation, a repetitively high yield was an indicator of undervaluation. Conversely, her thought processes looked upon a repetitively low yield as a sign of overvaluation. Her books, Dividends Don’t Lie: Finding Value in Blue-Chip Stocks and Dividends Still Don’t Lie: The Truth About Investing in Blue Chip Stocks and Winning in the Stock Market extoll her value-based based dividend-yield theory, which she has employed to produce consistent returns in the stock market.

Growth vs. Value Investing

Value stocks are thought to entail less risk because they tend to be those of larger companies with longer track records. They are also thought to hold the potential for capital growth even if they don’t hit their predicted targets.

What’s more, value stocks also usually pay dividends.

Meanwhile, the earnings of growth stocks tend to be reinvested to sustain their growth. The companies behind them are considered to present more risk because they are often younger and still trying to find their feet. However, growth stocks also tend to offer greater potential for reward.

Value stocks can be more favorable investments during bear markets and recessions, while growth stocks often thrive during bull markets and periods of economic expansion. While growth stocks have outperformed value stocks over the past decade, value stocks have tended to show better results over the long haul.

However, as demonstrated by the legendary investors profiled here, it is possible to do quite well pursuing either strategy. The key—as always—when deciding, is to be mindful of individual investment goals, time horizons, tolerances for risk, and personal preferences.

Either way, as Walter Schloss and many other successful investors have advised, portfolio diversification can be a strong hedge against market volatility. To that end, incorporating alternative investments as a form of portfolio diversification hold the potential to be of good use.

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Alternative Investments and Portfolio Diversification

Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.

In some cases, this risk can be greater than that of traditional investments. This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially exceptional gains these investments presented were also limited to these groups.

To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

In Summary

When it comes to the growth vs. value debate, even the most successful American investors have differed on the merits of these disparate investment strategies. The key is to be mindful of individual investment goals, time horizons, risk tolerances and personal ambitions. And, as always, being careful to ensure adequate portfolio diversification to help mitigate risk.

All securities involve risk and may result in significant losses. Alternative investments involve specific risks that may be greater than those associated with traditional investments. It should be understood that these risks are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices and carry additional risk of loss. This includes the possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments. Further, these investments are generally considered to be illiquid, due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information.