Our list of billionaires and millionaires reflect four very different investment philosophies and strategies, yet all led to the generation of substantial wealth. They represent the spectrum of investment strategies – from speculation to value investing. A newer breed of investor represented by Larry Page and Sergey Brin is the social entrepreneur. The Google founders are the living models of the philosophy that it is okay to make a profit while doing good and contributing to the well-being of the world.
- The Hedge Fund Manager : George Soros
George Soros is best known as a currency trader and the hedge fund manager who broke the Bank of England. Many people follow the foreign currency trades of this famed hedge fund manager and ignore his stock investments. George Soros’ top stockholdings look like an index of leading US companies nicely diversified across industry sectors. But Soros is a speculator who is selling in and out, and changing the composition, of his portfolio daily.
In 1992, he made his biggest bet by shorting the British pound as British interest rates were rising. The British government was running short of money trying to buoy the currency and eventually withdrew from the European Exchange Rate Mechanism (ERM). Soros made $1 billion as the pound was devalued.
Even this speculative trader maintains a well-diversified portfolio across industries. He has been buying and selling pharmaceutical and biotechnology stocks throughout the year – a sector that has performed well and even withstood the China crash. He does have a heavier weighting in energy stocks. While the media likes to talk about what companies and sectors the hedge fund manager likes, by his very active trading activity, it is more likely technical signals and trends rather than fundamentals are motivating his trades.
- The Value Investor : Warren Buffet
Warren Buffett – is known as the world’s most famous value investor. Recent calculations show he is also the world’s most successful investor. His strategy is to invest in companies that are trading at a price-to-earnings multiple below their intrinsic value. The company must have strong fundamentals and, ideally, make a product he uses or likes as part of his “invest in what you know” philosophy. He is a large and long-time shareholder in the Coca-Cola company and is often seen with the soft drink in his hand.
Not surprisingly, Warren Buffet’s top stock picks are leading US brands. This year, he has been adding to his positions in US Bancorp, Wells Fargo, Wal-mart and IBM. Buffet favours dividend stocks and considers the reinvesting of his dividends to contribute to his strong investment performance.
- The Corporate Raider: Carl Icahn
Carl Icahn is known as a ruthless investor by some, and a very astute investor by others. He is known for taking controlling positions in companies, sometimes through hostile takeovers. He has owned the bulk of shares in many leading American companies such as Motorola, Texaco, Western Union, Revlon, Time Warner, Fairmont Hotels, and many others. His strategy is to take companies private, restructure them, sell off assets, and then sell the companies or take them public again.
He sees himself as more of a white knight in the form of a shareholder activist, helping to oust inefficient managements, than a corporate raider. Icahn’s stock picking is worth watching because when he invests in a company, the stock usually rises. In June 2014, for example, he bought a large stake in Family Dollar, which was then sold to Dollar Tree less than two months later at a 25% stock premium. This is because when Icahn invests in a company, investors expect some sort of shakeup, sale, merger or acquisition that will raise the stock price.
In 2013 when he bought Apple, the stock rose 5% (Wikipedia). His most recent large stake is in Lyft, a ride-sharing service. Carl Icahn’s recent stock picks show he is steadily acquiring stock in Apple, eBay and Federal-Mogul Holdings.
- The Social Entrepreneurs : Larry Page and Sergey Brin
Larry Page and Sergey Brin – the founders of search engine giant Google are known to generously invest in projects of former Stanford alumni and those of other entrepreneurs they find interesting. Larry Page is so enamoured of his investments in SpaceX, solar gear maker and installer SolarCity, and electric car maker Tesla Motors, he says he would like to give his billions to the founder of these companies, Elon Musk. Page and Brin are social entrepreneurs of heart who “want to change the world” and the world’s perception that companies cannot do good for good’s sake. Of SpaceX, Page has said, “That’s a company, and that’s philanthropical.”
The Google founders are better known for their private investments in cool technology such as the driverless car and balloon-hosted internet services for remote areas of the world. Sergey Brin is an investor in human space missions company Space Adventures, and both Google founders are investors in asteroid mining company Planetary Resources. Through Google.org, they invest in renewable energy projects.
These group of billionaire investors are outliers – not all hedge fund managers, value investors, shareholder activists or social entrepreneurs do nearly as well. If you were to choose one strategy, which one would it be? The strategy that has proven to produce the highest returns over the long term for the greatest number of people is the most conservative – value investing.
In the overall investment population, those who buy and hold good companies do much better than active investors. For Soros and Icahn, trading in and out of dozens of stocks a month works, but most of us will never replicate their success as active investors. Warren Buffet’s successful value investing strategy, on the other hand, is being replicated every day.