Starting out on an investing journey can both be exciting and scary at the same time.
With a wealth of information now available online, it could prove overwhelming for new investors to try their hand at every idea that comes along. So, instead of focusing on what should be done, we can consider starting with the things that should not be done.
To help us with that, we can seek clues from one of most successful investors of our time, Warren Buffett.
On 17 May, 1984, Buffett wrote a seminal article entitled “The Superinvestors of Graham and Doddsville”. In the article, he highlighted a group of nine investors with super track records spanning over more than 10 years. The track records of five of them are summarized below:
|Superinvestor||Tenure||Annual Compound Rate Over Tenure||Total Percentage Gain Over Tenure|
|Stan Perlmeter||1965 – 1983||23.0%||4277%|
|Bill Ruane||1970 – 1984||17.9%||775%|
|Tom Knapp||1968 – 1983||20.0%||1661%|
|Walter Schloss||1956 – 1984||21.3%||23104%|
|Charlie Munger||1962 – 1975||19.8%||1157%|
Source: The Superinvestors of Graham and Doddsville
But Buffett did not stop there. He went on to make one key observation:
“I should add that, in the records we’ve looked at so far, throughout this whole period, there was practically no duplication in these portfolios.”
In other words, although the investing timeframes of the five overlapped by a great deal, they were able to post superb returns using completely different sets of companies.
Therein lies a valuable lesson.
It turns out that investing is not just a single set of steps inscribed in stone. As such, the new investor could be better off not looking for that one secret formula, which is guaranteed beat the stock market. Instead, Buffett shows that there are many roads to investing success, and many different investing styles that can help you get there.
This is evident from the stunning track records of all nine superinvestors, and the different styles that helped them achieve it.
For instance, the late Walter Schloss was known for casting his net around stocks that were trading below their book value. Within the SGX, a company like Hong Kong Land (SGX: H78) might just interest him. The property investment and management group is currently trading at a price-to-book value of 0.6.
At the other end of the investing spectrum, Charlie Munger has been credited with influencing Buffett with the idea of paying a fair price for a great company. It is possible that Munger might show an interest in a company such as Dairy Farm (SGX: D01). The Asian retailer has delivered a 10-year EPS annual return of 14.98% but trades at a loftier PE of 28.9.
Like the secret of the Dragon Scroll in Kung Fu Panda, the key to investing may just lie in you, the new investor. Give yourself a pat on the back for starting out on this long rewarding journey. Your willingness to learn about investing in businesses, not tickers, may just prove invaluable if you want to beat the market over the long term.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Hui Leong Chin doesn’t own shares in any companies mentioned.