By Graeme Kennedy
Friday 16th July 2004
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Buffett, a midwest American, has made more than $US30 billion with his Berkshire Hathaway Group by buying businesses for far less than he considered they were worth and $US1000 invested with him in 1956 would have now grown to almost $US26 million on annual compounded interest of 24.7%.
Meanwhile, Soros, a Hungarian Jew, has made huge leveraged trades on the currency and futures markets through his Quantum Funds to amass $US7 billion and $US1000 with him in 1969 would now be worth more than $5 million on 28.6% annual compounded interest. Similar investments in the Standard & Poor's index would have yielded less than $US75,000.
Hong Kong-based Australian investment analyst-adviser Mark Tier has long pondered the secrets of the super-investors and found that rather than differing in their approach, Soros, Buffett and other big winners shared many similarities in their approach to making money. He lists these in his new book The Winning Investment Habits of Warren Buffett and George Soros (Inverse, through Addenda, $39.95), due in stores this week.
"I looked at their mental strategies and processes for making investments and analysed and tested them by applying them to other successful investors," Tier said. "And my own results improved dramatically when I changed my own behaviour by adopting these winning habits so my personal stock market investments have risen an average of 24.4% a year compared to the S&P, which went up only 2.3% a year. Applying the right mental habits can make the difference between success and failure in anything you do."
Tier said the first priority for Buffet and Soros was not to make money but not to lose it. Preservation of capital was not only the first winning investment habit, he said, but the foundation of all other practices and the cornerstone of an entire investment strategy. He said the early childhood of both men had influenced their aversion to parting with money.
Soros, a Jew living under Nazi rule, saw every day as a risk and an investment loss, no matter how small, felt like a step back toward the bottom of his life, Tier said.
Buffett's father was out of a job and broke after the bank he worked for collapsed in 1931 and a career as a stocks salesman failed during the Great Depression, leaving young Buffett with a lifelong abhorrence of losing money.
"Mr Buffett's attitude to money is future-oriented," he said.
"When he loses or spends a dollar he doesn't think of the money but of what it could have become. Both men focus on not losing and they think about how much money they could lose if their decisions are wrong. And they never procrastinate when they decide to buy something there is an automatic process to act instantly.
"They never diversify. If they see a good investment which meets their criteria, a bargain they know will make money, why hold back from putting everything into it these opportunities don't grow on trees so why save money for another which might not come along."
Tier said neither Buffett nor Soros relied on market predictions, including their own, but bought to their own criteria rather than forecasts.
"Successful investors don't rely on predicting the market's next move," he said. "Mr Buffett and Mr Soros would be the first to admit that if they relied on their market predictions they'd go broke. Prediction is for investment newsletters and mutual fund marketing, not successful investing."
Nor do they rely on inside information. Tier said Buffett's best source of investment tips were company annual reports. "With enough inside information you can go broke in a year," he once said.
Tier said top investors accepted responsibility for results, whether profits or losses. Buffett invested only in areas he fully understood, noting that "risk comes from not knowing what you are doing."
Soros, meanwhile, learned from his father during the early Nazi occupations days "when taking a risk, never bet the ranch."
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