The Greatest Investors: Warren Buffett

Warren Buffett

Born:	Omaha, Nebraska, in 1930
Affiliations:	Buffett-Falk & Company Graham-Newman Corporation Buffett Partnership, Ltd. Berkshire Hathaway, Inc.
Most Famous For:	Referred to as the "Sage" or "Oracle" of Omaha, Warren Buffett is widely viewed as one of the most successful investors in history. Following the principles set out by Benjamin Graham, he has amassed a personal multibillion dollar fortune mainly through investing in stocks and buying companies through Berkshire Hathaway. Shareholders in Berkshire Hathaway who invested $10,000 in the company in 1965 are above the $50 million mark today. Now in his 70s, Buffett has yet to write a single book, but among investment professionals and the investing public, there is no more respected voice. In 2006, Buffett announced that he would pledge much of his reported $44 billion in stock holdings to the Bill and Melinda Gates Foundation ($31 billion) and four other charities ($6 billion) started by members of his family.

Personal Profile
Warren Buffett graduated from the University of Nebraska in 1950 with a Bachelor of Science degree. After reading "The Intelligent Investor" by Benjamin Graham, he wanted to study under Graham, and did so at Columbia University, obtaining his Master of Science degree in business in 1951.

He then returned to Omaha and formed the investment firm of Buffett-Falk & Company, and worked as an investment salesman from 1951 to 1954. During this time, Buffett developed a close relationship with Graham, who was generous with his time and thoughts. This interaction between the former professor and student eventually landed Buffett a job with Graham's New York firm, Graham-Newman Corporation, where he worked as a security analyst from 1954 to 1956. These two years of working side-by-side with Graham and analyzing hundreds of companies were instructive years that formed the foundation for Buffett's approach to successful stock investing.

Wanting to work independently, Buffett returned home once again to Omaha and started a family investment partnership at age 25 with a starting capital base of $100,000. From 1956 to 1969, when the Buffett partnership was dissolved, investors, including Buffett, experienced a thirty-fold gain in their value per share. Prior to the final decision to liquidate the partnership, Buffett had acquired the unprofitable Berkshire Hathaway textile company in New Bedford, Massachusetts, in 1965. After acquiring Berkshire, Buffett effected a successful turnaround of the company, which focused on changing the company's financial framework. Berkshire kept its textile business, even in the face of mounting pressures, but also used the company as a holding company for other investments.

It was in the 1973-74 market collapse that Berkshire got the opportunity to purchase other companies at bargain prices. Buffett went on a buying spree, which included an investment in The Washington Post. The rest is history and today, Berkshire Hathaway is a massive holdings company for a variety of businesses with assets and sales totaling, approximately, $240 billion and $100 billion, respectively, for year-end 2006.

Investment Style
Warren Buffett's investing style of discipline, patience and value has consistently outperformed the market for decades.

John Train, author of "The Money Masters"(1980), provides us with a succinct description of Buffett's investment approach: "The essence of Warren's thinking is that the business world is divided into a tiny number of wonderful businesses – well worth investing in at a price – and a large number of bad or mediocre businesses that are not attractive as long-term investments. Most of the time, most businesses are not worth what they are selling for, but on rare occasions the wonderful businesses are almost given away. When that happens, buy boldly, paying no attention to current gloomy economic and stock market forecasts."

Buffett's criteria for "wonderful businesses" include, among others, the following:

• They have a good return on capital without a lot of debt.
• They are understandable.
• They see their profits in cash flow.
• They have strong franchises and, therefore, freedom to price.
• They don't take a genius to run.
• Their earnings are predictable.
• The management is owner-oriented.

Publications
Buffett has not, as yet, authored any books. However, his annual letters to the shareholders in Berkshire Hathaway's annual report are a suitable substitute. Back copies of these 20-page masterpieces of investing wisdom are available from 1977 through 2006 (updated annually) from Berkshire's Website.

• "Buffett: The Making of an American Capitalist" by Roger Lowenstein (1996).
• "Warren Buffett Speaks: Wit And Wisdom From The World's Greatest Investor" (1997)
• "The Warren Buffett Way" by Robert G. Hagstrom (2005)

Quotes

"Rule No.1 is never lose money. Rule No.2 is never forget rule number one."

"Shares are not mere pieces of paper. They represent part ownership of a business. So, when contemplating an investment, think like a prospective owner."

"All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies."

"Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it."

"If, when making a stock investment, you're not considering holding it at least ten years, don't waste more than ten minutes considering it."

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The Greatest Investors: William J. O'Neil

Born:	Oklahoma City, Oklahoma, in 1933
Affiliations:	Hayden, Stone & Company William O'Neil & Company, Inc. O'Neil Data Systems, Inc. Investor's Business Daily
Most Famous For:	Bill O'Neil is a top-performing stock broker, inventor of the growth stock investing strategy, CANSLIM, author and founder of the national financial newspaper, Investor's Business Daily, which competes with The Wall Street Journal.

Personal Profile
Bill O'Neil majored in business administration at Southern Methodist University, receiving a Bachelor of Arts degree in 1955. After military service, he started his career as a stockbroker with Hayden, Stone & Company in 1958, and developed an investment strategy (CANSLIM), which made him the highest performing broker in his firm.
His professional and financial successes lead him to form a brokerage firm, the William O'Neil & Co., Inc, in 1963. At 30 years old,he became the youngest person to buy a seat on the New York Stock Exchange.

In 1983, he founded a national financial daily newspaper called Investor's Daily, which became the Investor's Business Daily in 1991. As of 2007, he serves as CEO of William O'Neil & Co., is the chairman and publisher of the Investor's Business Daily, and lectures and writes on investment topics nationwide.

Investment Style
O'Neil blends a mixture of quantitative and qualitative strategies in his performance-oriented investing approach. In brief, his investment style is to seek out only those growth stocks that have the greatest potential for swift price rises from the moment they are purchased.

Essentially, Bill O'Neil's motto is "buy the strong, sell the weak." His criteria for identifying a stock that's about to head for the stratosphere are summarized in his well-known acronym CANSLIM:

C – Current quarterly earnings per share have increased sharply from the same quarters' earnings reported in the prior year (at least 25%).

A – Annual earnings increases at a compound rate of no less than 25% (P/E is unimportant – probably in the range of 20 to 45 with these stocks) annually over the last five years.

N – New products, new management, and new highs. Stocks with a good "story."

S – Supply and demand. The less stock available, the more buying will drive up the price. Look for stocks with 10 to 12 million shares outstanding.

L – Leaders and laggards. Stick with those stocks that outperform and shed those that underperform.

I – Institutional ownership. Favor companies that are "underowned" by the top professional investors.

M – Market direction. Buy stocks on major downturns, but avoid purchases after a decline of 10% or more gets underway.


Publications

• " How To Make Money In Stocks" by William J. O'Neil(1988).
• "24 Essential Lessons For Investment Success" by William J. O'Neil (1999).
• "The Successful Investor" by William J. O'Neil(2003).

Quotes

"Since the market tends to go in the opposite direction of what the majority of people think, I would say 95% of all these people you hear on TV shows are giving you their personal opinion. And personal opinions are almost always worthless … facts and markets are far more reliable."

"The whole secret to winning and losing in the stock market is to lose the least amount possible when you're not right."

"What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower."

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The Greatest Investors: William H. Gross

Bill Gross

Born:	Middletown, Ohio, in 1944
Affiliations:	Pacific Mutual Life Insurance Company Pacific Investment Management Company (PIMCO)
Most Famous For:	Considered the "king of bonds," Bill Gross is the world's leading bond fund manager. As the founder and managing director of the PIMCO family of bond funds, he and his team of bond professionals have more than $600 billion in fixed-income assets under management. In 1996, he was the first portfolio manager inducted into the Fixed-Income Analyst Society Inc. (FIASI) hall of fame for his major contributions to the advancement of bond and portfolio analysis. Among other investing traits, Gross is famous for his ability to change directions without hesitation in response to changes in the markets. In July 2005, SmartMoney.com's Nicole Bullock observed that "Gross doesn't adjust to market conditions – he changes them! His views on the bond market are widely followed by professional investors and the investing public worldwide."

Personal Profile
Gross is a Duke University graduate with a degree in psychology (1966). Part of his "informal" education included spending a summer playing professional blackjack in Las Vegas. After graduation, he served as a naval officer on a destroyer off the coast of Vietnam.

After the military, Gross headed for business school and obtained his MBA in 1971 from the University of California, Los Angeles. He received his Certified Financial Analyst (CFA) credentials while working as an investment analyst with Pacific Mutual Life in Los Angeles from 1971 to 1976.

His last assignment at Pacific Mutual from 1976 to 1978 was as an Assistant Vice President managing fixed income securities. Gross founded, and has been the managing director and chief investment officer, for Pacific Investment Management Company (PIMCO), the world's largest fixed-income management firm, since its inception in 1982.

Investment Style
In an October, 2005, commentary piece, MarketThoughts.com editor, Henry K. To wrote that Bill Gross "believes that successful investment in the long-run (whether in bonds or equities) rests on two foundations: the ability to formulate and articulate a secular [long-term] outlook and having the correct structural composition within one's portfolio over time."

Gross describes these foundations as having a three- to five-year forecast that forces an investor to think long term and to avoid the destructive "emotional whipsaws of fear and greed." He clearly states that "such emotions can convince any investor or management firm to do exactly the wrong thing during irrational periods in the market."

Secondly, he argues that "those who fail to recognize the structural elements of the investment equation [asset allocation, diversification, risk-return measurements and investing costs] will leave far more chips on the table for other more astute investors to scoop up than they could ever imagine."

Publications

• "Bill Gross On Investing"by William H. Gross (1998)
• "Everything You've Heard About Investing Is Wrong!: How To Profit In The Coming Post-Bull Markets" by William H. Gross(1997).
• "Bond King: Investment Secrets From PIMC's Bill Gross" by Timothy Middleton,(2004).

Quotes

"Finding the best person or the best organization to invest your money is one of the most important financial decisions you'll ever make."

"Do you really like a particular stock? Put 10% or so of your portfolio on it. Make the idea count … Good [investment] ideas should not be diversified away into meaningless oblivion."

"The genius of Bill Gross, from the gaming tables to the high-tech world of bond trading, is his knowing, quantifying and playing risk." (Timothy Middleton, "The Bond King")

"Bill often has been characterized as the Peter Lynch of the bond markets. But based on his longevity … and the size of his assets under management … it would be more appropriate to characterize Peter Lynch as the Bill Gross of the equity markets." (Jack Malvey, Lehman Brothers, 1996)

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