The gurus of the investing world are some of the wealthiest people in the world. Using their knowledge of the market, these gurus have turned pennies into millions, and millions into billions. So, it’s no wonder that so many people track the movements of these top-notch investors. What are the most important lessons they can teach us? That depends on which guru you ask. Nonetheless, here are five necessities that market gurus have shown to be overwhelmingly important in the process of building wealth.
There’s a reason penny stocks are so cheap!
One of Buffett's lessons is to choose stocks to purchase wisely. In particular, he has pointed to the idea that penny stocks trade so low for a reason, and that it’s not necessarily a good idea to buy them just because they're cheap. In fact, Buffett once said:Â “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Essentially, when investing, price isn’t everything. Instead, learning from one of the best investors of all time, it’s more important to pay attention to the stability and potential of the company, rather than the price of its shares.
Don’t go into debt In order to invest
When first getting started in the market, it quickly becomes clear that the more money you have to invest, the higher your potential gains could be. Consequently, many find themselves using their credit cards when making investments, essentially going into debt in the pursuit of gains in the market.
But Buffett has also warned against doing just that. While the billionaire investing mogul has owned shares of companies like Visa, MasterCard and American Express, Buffett has also been clear about the fact that regardless of bonuses and perks, credit card debt is expensive and one should never go into debt in order to invest!
In fact, in a statement explaining why credit card debt should be avoided, even in the process of investing, Buffett once said:
“I’ve seen more people fail because of liquor and leverage -- leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.”
Not all strategies are created equal
One factor that will largely determine success or lack thereof in the investing world is the strategy that you choose, and it’s important to remember that all strategies are not created equal. The reality is that different investors will have different styles. That quickly becomes clear when we look at the strategies used by some of the world’s top gurus:
- Carl Icahn (Trades, Portfolio) - Icahn’s investment strategy is a strange concept to many, but it has clearly worked. As a contrarian investor, he is essentially in the business of buying stocks that nobody wants. Of course, this gets him in the door cheap, offering the opportunity for extreme gains should the company or asset turn around.
- Charlie Munger (Trades, Portfolio) - Munger, on the other hand, takes a slow and steady approach. Knowing that with time, growth generally takes place when the right stocks are picked, Munger points out that in some cases, the tortoise will outrun the hare. By making as few trades as possible, cutting costs and taking what many call “the lazy man’s” approach to investing, Munger has invested his way to the top.
- George Soros (Trades, Portfolio) - Soros follows politics closely, combining his knowledge of the political arena with incredible investment acumen. In fact, back in 2013, Soros accurately predicted the downward direction of the yen due to political elements, leading to a $4 billion profit!
”‹Dividends and growth are two separate streams of income
While some gurus follow a growth investing concept, looking into stocks that present a strong growth opportunity, others invest for dividends. The two are very different. Growth is when the underlying value of the stock moves upward. However, dividends are amounts paid on a regular basis by well-established company, providing a nearly guaranteed return on investment.
In fact, Charlie Munger (Trades, Portfolio), vice chairman of Berkshire Hathaway, is one of the strongest dividend investors of all time. This strategy became clear when he ran the portfolio at Wesco, a portfolio that is now owned completely by Berkshire Hathaway.
Under his management, the Wesco portfolio prominently featured Procter & Gamble (PG, Financial), Kraft (KRFT, Financial), US Bancorp (USB, Financial), Coca-Cola (KO, Financial), Wells Fargo (WFC, Financial) and Wal-Mart (WMT, Financial). All of these companies are known for the strong dividends they pay along with sound growth they create.
Everyone is a salesman
Everyone in the market is ultimately there to make money, and whether they are brokers, investors, bloggers or any other member of the market, they all happen to be salesmen. Even Buffett once said, “The most important skill in finance is salesmanship.”
Nonetheless, while everyone is a salesman, what works for others may not always work for you. It’s important to always do your own due diligence before making an investment decision.
Final thoughts
The gurus of the investing world got there through incredible investment acumen combined with the right habits. Including the five investment necessities above in your day-to-day investing style may help you work your way to becoming a guru in the future.
