The easiest way to be successful at anything is to learn from the best. This is as true for basketball as it is for cooking as it is for investing. Chances are if you're on this site, you want to achieve financial freedom sooner rather than later. One of the best ways to do that is to compound your wealth in the stock market. And the best way to learn about it is to study the best money managers of all time.
As Eleanor Roosevelt said:
Learn from the mistakes of others. You can't live long enough to make them all yourself.Eleanor Roosevelt – US diplomat & reformer (1884 – 1962)
So in this post, we will be covering the 5 best money managers ever. For each one, we'll cover their backstory, the professional (and investing) success they've had, and the strategies they've used in their investment management to achieve it. You'll undoubtedly pick up a thing or two by learning from the best. You'll also realize that you don't need to have a finance degree or work in the financial industry to succeed with your investments.
Born in Omaha, Nebraska, Charlie grew up in a “lawyer family”. His father was a lawyer and his grandfather was a district court judge and state representative. Naturally, Munger decided to follow the same path. After dropping out of his undergrad to serve in the army for a few years, he applied and got into Harvard Law School.
Throughout his 20s when he was going through all this, Charlie picked up a crucial skill that would serve him well in the future: card-playing! “What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don't get a big edge often. Opportunity comes, but it doesn't come often, so seize it when it does come.”
After law school, he joined a law firm in California and worked as a lawyer for two decades. In 1962, he started his own investment firm which began his money managing career! It wouldn't be long before Munger joined Buffett and started managing investments full time. And the rest… is history.
Despite his incredible story, Munger didn't exactly have a smooth journey. Before becoming the successful billionaire investor he is today he had to endure a painful divorce, lost his 9-year-old son to leukemia, and had to close down his own investment firm after two consecutive years of -30% returns. Most people would have quit and turned to alcohol or drugs, but Munger pushed through and THAT in and of itself accounts for a huge part of his success in life.
Charlie's Money Managing Success
Before becoming Vice-Chairman of Berkshire Hathaway, Munger owned his own investment management firm and was an asset manager. Although he had to close it after two consecutive poor years, the fund had massive success.
Warren Buffett reportedly said that Munger's fund returned a compounded growth rate of 20% for all the years it was running (less the last two). At the time, that was more than 4x the stock market returns.
Nowadays Munger is at Berkshire Hathaway, and continues to influence the decisions and day to day of the conglomerate. Over the past 20 years, Berkshire has returned to investors 520% compared to the S&P500's 250%.
Charlie's Investing Philosophy
If you were to describe Charlie Munger's investing philosophy in a phrase, it would be: patience + conviction.
Basically, have the patience to wait for the right investment, but once identified, act with conviction. When asked how he made his fortune, Munger explained: “In 50 years, I found one investment opportunity in Barron's, out of which I made about $80 million. For almost no risk.”
He learned this strategy from his days playing cards (see how that's important now). The quintessential “know when to fold 'em, and know when to hold 'em,” philosophy. In the investing world, it translates to “know when to stay out of the market (be patient), but know when to bet big (have conviction).”
Although we might not all be as disciplined as Charlie Munger, we can definitely learn a thing or two from how he invests. Too often the mistakes investors make are ones of omission and not of action. Basically, you chose the right stock but didn't put nearly as much as you should have into it. Munger would advocate that if you have a lot of conviction in the stock… go big!!! But until you have that kind of conviction… save your money.
Born in 1944 in Massachusetts, Peter Lynch endured a tough childhood. His father passed away from cancer when Peter was just 10 making his mother the sole breadwinner of the family. Lynch says that during his early teens he had to work as a caddie to help support the family.
In 1965, Lynch graduated from Boston College and soon received his MBA from Wharton Business School a few years later. During this time, he managed to land an internship at Fidelity Investments partly due to his connections with the president of the company (from his caddying days).
Lynch originally covered the textiles, metals, mining, and chemicals industries, but was promoted to director of research in 1974. In 1977, he was named the head of the Magellan Fund and was in charge of its portfolio. That's when his career really took off. From 1977 to 1990 when Lynch was in charge of the fund, it grew from $18 million in assets to more than $14 BILLION in assets.
After retiring in 1990, Lynch turned to philanthropy and nowadays actively gives and managed his own private charity.
Peter's Money Managing Success
When Peter was in charge of the Magellan Fund (from 1977 to 1990), it averaged a 29.2% annual compounded return. As of 2003, the Magellan Fund had the best 20-year return of any mutual fund ever.
And of course, as previously mentioned, Lynch grew the assets under management from $18 million to over $14 billion… more than 700xing the portfolio size.
Peter's Investing Philosophy
Lynch is well-known for coining the term “invest in what you know” and preaching the idea of “local knowledge”.
Basically, Lynch believes that people tend to become experts in certain specific fields and develop a “local knowledge” of that field. They can then use this knowledge in their asset-allocation and find undervalued stocks to invest in.
Lynch is also a public proponent of NOT timing the market (a little bit different from Munger) and applies that thinking to his own portfolio management… Peter once said, “far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.”
Finally, Lynch is a big believer that the individual investor might actually have an edge over big institutions. This is because as a retail investor, you don't have committees and rules to follow, allowing you to try a variety of different things. On top of that, you as an individual are able to spot day-to-day things that might take Wall Street a while to catch up on.
Born 1930 in Budapest Hungary, George grew up in a successful Jewish family. Unfortunately, in 1944, the Nazi's invaded Hungary and the Soros family was forced to split up to avoid being sent to concentration camps.
In 1947 they moved to London, England and Soros began studying philosophy at the London School of Economics. George soon left his plans to become a philosopher behind and instead started working at a bank. In 1956 he moved to New York to become a financial analyst and his investing career started to take off.
In 1973, Soros established the Soros Fund, a hedge fund in which he took daring bets. His aggressive investing strategy caused the fund to grow quick, but also induced a lot of volatility.
Some of George's professional feats include correctly predicting the crash of 1987 and profitting off the 1999 Internet stocks. But the day he truly gained legendary status was when he predicted (and played) the 1992 devaluing of the British pound sterling. Soros' fund made over $1 billion in one day and he gained the title as “the man who broke the Bank of England.”
After various political troubles, lawsuits and run-ins with the SEC, Soros closed down his fund to the public and turned his attention to philanthropy. To date, he's donated over $32 billion to the Open Society making him the “most generous giver” according to Forbes.
George's Money Managing Success
From 1970 to 2000, Soros' fund achieved a compounded growth rate of over 30%. On top of that, he has gained legendary status by taking a $10 billion short position on the pound in 1992, earning him more than a $1 billion in one day.
Furthermore, Soros donates generously to education and health programs, human rights, and the establishment of democracy around the world. Soros' net worth is currently around $8.6 billion, but he has donated over $30 billion to charity. Not only is George successful in making money, he's also successful in giving money.
George's Investing Philosophy
Soros is incredibly unique amongst the best portfolio managers in that he admits to relying heavily upon instinct. George will find a market inefficiency and pounce on it with large, heavily leveraged bets.
Despite his reliance on instinct, Soros IS known for being super-informed on the markets. One theory is that Soros has internalized so much of the market and economic trends that he instinctively knows when an opportunity arises long before he can logically explain it.
On top of that, Soros is also willing to ride out the bets for longer than other hedge fund managers. This is partly due to incredible risk tolerance and partly due to his deep pockets.
Either way, what we can learn from George Soros is to commit to our positions. Soros is famous for taking heavy one way bets. As in, he will predict whether a commodity or currency will rise/fall, then bet heavily into it without hedging his bets.
Whatever it is he's been doing, it's worked and forever placed his names in the annals of investing history alongside legends like Buffett.
Born in New York City in 1949, Ray Dalio began buying and selling stocks from age 12. Growing up as an only child, Ray enjoyed sports and music, but despised school (especially memorization).
Since age 12, Ray started caddying at the Links Golf Club, home of many famous politicians and many Wall Street investors. In the 1960s, all the talk on the course was about the surging stock market, and Ray became interested. With $300 saved up, he bought his first stock (Northeast Airlines) and it just so happened to 3x his money. He was hooked.
Throughout high school and college Ray actively invested and grew his money. He received a bachelor's degree in finance at Long Island University and an MBA from Harvard Business School before truly starting his professional career.
Despite his brute and sometimes aggressive behavior, there was no denying that Ray was a commodity trading expert. In 1975, Dalio founded Bridgewater Associates out of his two-bedroom apartment and started managing a few clients' money. Even though Bridgewater was doing well, it wasn't until McDonald's signed as one of their clients that Ray's fund really took off.
Since then, Bridgewater has grown to be one of the largest and most successful hedge funds in the world. As of October 2017, Bridgewater Associates had more than $160 billion in assets under management.
Ray's Money Managing Success
Aside from being one of the world's largest hedge funds and wealth management firms, Bridgewater has experienced considerable return success.
From 1991 to 2005, Bridgewater only lost money in 3 calendar years and never more than 4%. In that same time period, the S&P500 lost money in 3 calendar years as well including a negative return of 22% in 2002.
Ray's Investing Philosophy
Ray Dalio pioneered a lot of investing strategies, but his most famous portfolio construction philosophies are:
- Risk parity and diversification
- Investing with a system
Dalio was one of the first to utilize this concept of “risk parity”. Basically, if you can find 15-20 streams of uncorrelated assets to invest in, you can have the same (or higher) returns with much less risk. You can use this by diversifying your own portfolio not just in different investments but in different asset classes.
Have some of your portfolio in stocks, some in real estate, some in crypto, etc. The more uncorrelated the assets, the more stable your returns will be.
Secondly, Dalio is famous for investing with a system. Ever since he was 12 Dalio has been following a set of principles that aid in his decision making. Over time, as he learns, he adjusts these principles and this has served him extremely well throughout the years.
We can learn from this by creating our OWN set of principles to invest by and tinker with. Too many people just blindly invest without a strategy. It's better to have a strategy that fails than no strategy at all… because at least with the failing strategy you can adjust it and improve it.
Born in Omaha, Nebraska in 1930, Warren was the second child of Leila and Howard Buffett. Since his early years, Warren always had an entrepreneurial streak. From selling coca-cola, to flipping golf balls, to trading stamps, Warren was making money from a young age.
Warren bought his first stock at age 11 after his father, who worked as a stock broker, took him to see the New York Stock Exchange. Warren says he learned a lot from that first investment including the important of patience and not to rush a decision.
Graduating from high school in 1947, Buffett had to be persuaded by his father to enrol in the Wharton School of the University of Pennsylvania. After reading The Intelligent Investor by Benjamin Graham, Buffett decided to enrol in the Columbia University to continue his studies.
After graduating from Columbia, he was offered a job to work with Graham in 1954. Two years later, Buffett decided to move back to Omaha to start his own partnership and that's when his career really took off. From Buffett Associates to Buffett Partnership to Berkshire Hathaway, there were struggles along the way. But Buffett always got back up and learned from his mistakes.
Warren's Money Managing Success
Today, Berkshire is one of the most successful investment firms in the entire world. And Warren Buffett is arguably the best investor of all time.
From 1965 to 2020, Berkshire Hathaway has seen growth of over 20% a year, notably outstripping the S&P500. Not only that, but Buffett manages to do it consistently and over such a long period of time. THAT is what makes him so legendary.
Not the fact that he can beat the market. But the fact that he can CONTINUE to beat the market for such a long time.
Warren's Investing Strategy
Warren Buffett is a famous value investor. What this means is that Buffett looks for securities whose price is unjustifiably low. When he finds a good one, he'll buy it and wait for the market to realize its error and pump the stock back up.
As Benjamin Graham famously said: “In the short run, the market is a voting machine but in the long run it is a weighing machine.”
Warren is also a big proponent of “buying companies” and not just buying stocks and equities. What this means is that whenever he buys stock in a company, he asks himself “would I buy the entire company?” After an in-depth cash flow analysis, industry analysis, and company analysis if the answer is no, then he won't make the purchase.
What we can learn from Buffett is his practical, bargain style of investing. Search for as many cheap deals that have value as you can, and buy it all up!
Learn From the Best Money Managers!
To be the best, you must learn from the best. In this post, we've highlighted 5 of the best and most wealthy investment professionals of all time. Regardless of what they managed, from private wealth to mutual funds to insurance funds, these 5 people have run the most successful asset management firms in the entire world and you can definitely apply a few of their strategies to your own finances.
For each one, we've run through a quick bio, their historical success, and the strategies they've used to accomplish it. Despite all taking different approaches, one thing stands out as common between all the great investors… they took action!
They didn't stand around waiting for someone to tell them what to do. Each and every one was constantly thinking about new ways to tackle investing, constantly learning, and constantly improving. Plus, none of them came from old money and were all self-made. To achieve your own financial goals, you must learn from the best, but you also must act like the best.
So what are you waiting for? You don't need to be an investment advisor or certified financial planner or wealth manager to succeed in the markets. Just take action and develop your own finance skills! Get out there and start making your money work for you… who knows, maybe one day when I'm writing about high net worth individuals, I'll be writing about you! 😉
Who are your idols? Did I miss anyone? Do you really dislike/like anyone on this list? Let me know in the comments!
Thanks for reading through this post revealing the best money managers of all time and thank you for following along! If you’re a Canadian Student, check out the Ultimate Canadian Student’s Guide to Personal Finance! If you want to be financially free sooner, check out this page here! To learn more about me, head over to this link here. If you want to get exclusive updates and tips, drop your email in the “get updates” box (might have to scroll up a bit.) Let me know your thoughts and suggestions in the comments!
Jeff is a current Harvard student and author of the blog Financial Pupil who is passionate about learning, living, and sharing all things personal finance-related. He has experience working in the financial industry and enjoys the pursuit of financial freedom. Outside of blogging, he loves to cook, read, and golf in his spare time.