by Shai Angel
Throughout the history of investing, there have been a few prominent and extraordinary individuals who have left a lasting impact on other investors, not only in the realm of investments but also in terms of personal development and leading fulfilling lives. Most of them have a similar investing philosophy that has evolved over time; many refer to this philosophy as “value investing.” These are, in my opinion, the “Magnificent 7” investors.
- Benjamin Graham
- Warren Buffet
- Charlie Munger
- Peter Lynch
- Monish Pabrai
- Li Lu
- Joel Greenblatt
Many people refer to Benjamin Graham (1894–1976) as the “father of value investing.” He was a well-known economist, professor, and investor. Graham’s approach to investing is centered on “value investing,” identifying and purchasing cheap stocks based on their inherent value. Graham’s teachings impacted a generation of successful investors, including the most well-known one, Warren Buffett, at Columbia Business School. In finance, Benjamin Graham’s ideas remain central to the value investing concept and are widely considered timeless truths. The magnificent seven investors all adhere to these fundamental principles of value investing.
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- Margin of Safety
Purchasing stocks at a steep discount to their intrinsic value in order to hedge against negative returns.
- Mr. Market analogy
“Mr. Market” serves as a metaphor to show the manic-depressive nature of the market. Investors should not respond emotionally to short-term price movements, but rather should see market fluctuations as opportunities.
- Intrinsic Value
Using fundamental analysis to determine a stock’s intrinsic value and weighing financial health, earnings, and dividends over ephemeral market sentiment.
- Diversification
Value investors advocated diversification as a means of distributing risk. Excessive diversification, though, carries some risk. Therefore, before deciding to diversify the portfolio, careful research must be conducted.
- Long term perspective
Value investors steer clear of speculation and short-term market timing in favor of a long-term outlook. Investing with patience and discipline would pay off.
- Quality of Management
The quality of a company’s management is crucial. A well-managed company, coupled with a margin of safety, increased the attractiveness of an investment.
- Crisis of Opportunity
Value investors saw opportunities during market downturns and crises. In these periods, cheap stocks could be discovered and purchased at advantageous prices.
- Economic Moats
Value investors search for companies with a strong competitive edge or “economic moat.” Businesses that have a moat can safeguard their earnings in the long run.
- Circle of Competence
Value investors stick to their “circle of competence” by investing in companies and sectors they know about. A value investor doesn’t venture into fields where he isn’t an expert.
- Keep Emotions in Check
Peter Lynch advised against making investment decisions based solely on feelings. He thought making poor decisions could result from emotional reactions to market fluctuations.
Thankfully, many books about the remarkable seven investors have been written over the years, highlighting their experience, investing philosophy, and priceless guidance on improving as investors. I heartily suggest reading the books listed below:
“The Intelligent Investor” by Benjamin Graham. This timeless classic by Benjamin Graham, widely considered the “bible of value investing,” lays down the foundation and tenets of wise investing. Graham’s disciple, Warren Buffett, believes it to be the best investment book ever.
“The Dhandho Investor” by Monish Pabrai. Mohnish Pabrai delves into the notion of “Dhandho,” an investment strategy influenced by Indian business tenets. Value investors can learn useful insights from this book.
“The little book that still beats the market” by Joel Greenblatt. Joel Greenblatt shares his “magic formula” for investing in this approachable book. It describes a simple method for finding inexpensive stocks.
“Margin of Safety” by Seth A. Klarman. This rare and out-of-print book offers insights from Seth Klarman, the founder of the Baupost Group and a highly successful value investor. For serious value investors, it’s regarded as a must-read, but getting a copy can be difficult.
“The Warren Buffet Way” by Robert G. Hagstrom. This book examines Buffett’s investment philosophies and techniques, providing readers with an understanding of his stock selection and portfolio construction processes.
“Poor Charlie`s Almanack: The Wit and Wisdom of Charles T. Munger” by Peter D. Kaufman. The speeches, writings, and ideas of Charlie Munger on a variety of subjects outside of investing, such as psychology, economics, and life lessons, are collected in this book.
“One Up on Wall Street” by Peter Lynch. Lynch describes his investment philosophy in this classic, emphasizing that regular investors can utilize their experiences to spot potential investments. He talks about identifying “ten baggers,” or stocks that have the potential to double in value.
In conclusion, any investor can significantly raise the rates on their investment portfolio and, more importantly, their way of life by understanding and adhering to the Magnificent 7 Investors philosophy, as presented in various books, articles, and interviews.
Shai Angel, CPA, the author, earned a master’s degree in law, a bachelor’s degree in accounting and economics, and a certificate in director training. He has previously held senior financial positions in well-known businesses. In his years of working in the financial industry, he has participated in the capital market and actively learned about “Value Investing” from some of the most prominent investors in the world, including Warren Buffett, Peter Linz, Monish Fabray, and others. He has also applied their investment strategies.
