Investing Superheroes

Investing Superheroes: John Bogle

John Bogle has been a financial industry pioneer and respected spokesman for over fifty years. As the founder of The Vanguard Group, which specializes in low-cost index funds, he’s had tremendous impact in driving down the costs and complexities of market participation for millions of investors. Many of the standard components of sound investment advice weren’t standard before John Bogle.

Bogle’s Key Strategic Concepts:

  • Bogle starts with the importance of long-term thinking to investment success. “The historical data support one conclusion with unusual force: To invest with success, you must be a long-term investor”. This advice is so commonly heard, that it is easy to overlook the meaning. He continues this thought saying that “In the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses.” The long-term investor should be chiefly concerned being invested and earning the cash flow and growth generated by the businesses that he or she owns. The price of this growth and cash flow (to Bogle, “the markets”) will fluctuate and these fluctuations become meaningless over a longer time-frame.
  • “Time is your friend; impulse is your enemy” Bogle urges investors to be patient and to avoid hasty decisions. His advice is similar to the old saw “measure twice, cut once”. In other words, once we’ve started on a solid long-term investment strategy, the best thing we can do as investors is to let time and compounding work for us. Getting impulsive and changing strategies (“the enemy”) can do huge damage to our returns. 
  • John Bogle began thinking about index investing back in 1951 hinting at the idea in his Princeton thesis. The basic concept of index investing is to ignore trying to sort out “good stocks” from “bad stocks” and simply buy a diversified group of stocks as inexpensively as possible. In other words, “Don’t look for the needle in the haystack. Just buy the haystack!” It often sounds promising to try to find the best stocks, and many investors do exactly that. However, this means that the best companies often have the highest stock prices, making them not necessarily the best investments. 
  • Our favorite Bogle quote gets straight to the heart of our investing philosophy at Svane Capital. “Your success in investing will depend in part on your character and guts, and in part on your ability to realize at the height of ebullience and the depth of despair alike that this too shall pass”. Of course we must understand and focus on the long term characteristics of markets and use appropriate investing strategy. But we must also understand the normal short term behavior of markets, and use this to our advantage when possible. Day to day, and even month to month price action in markets, can be thought of as mostly random with inevitable swings from extreme optimism to extreme pessimism. It is at these extremes where the greatest opportunities are found. At these points the right decisions can feel scary or even wrong. Using these times to our advantage depends mainly on our courage, discipline, and understanding that they don’t last forever.

John Bogle had been thinking about the concept of index investing since writing his thesis in 1951. But he credits support received from Nobel prize winner Paul Samuelson, Charles D. Ellis, and Princeton Professor Burton G. Malkiel in creating a business to capitalize on the idea. 

Bogle founded The Vanguard Group in 1975 launching its first index fund in 1976. In 1996 he retired as CEO, but the company he started continued to grow into one of the largest mutual fund companies in the world today.  Two of his most popular books are “Common Sense on Mutual Funds”, and “The Clash of the Cultures: Investment vs. Speculation”.

Sources: www.johncbogle.com, www.vanguard.com, www.investopedia.com

SVANE CAPITAL, LLC IS A REGISTERED INVESTMENT ADVISER. INFORMATION PRESENTED IS FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.

Investing Superheroes: Howard Marks

Howard Marks has demonstrated the concept of consistent excellence as an investor, managing portfolios for over forty years. Marks has one of the best long-term track records over this time frame. He has led Oaktree Capital Management since founding the company with five other partners in 1995. 

Key Concepts

  • Markets are random. Investing strategies must take this into account. Howard says, “You can’t tell from an outcome whether or not it was a good decision. Even if you know what is most likely, other things can happen.” Of course this brings to mind the importance of diversification and limiting Portfolio exposure to any single factor. However, this statement also points to the difficulty of knowing whether an investor is good or just lucky. The same concept applies in determining whether an investment plan is on track in spite of initial poor performance. Marks’ answer is to focus on the decision making process rather than the results of this process.  
  • Consistency trumps outstanding individual results over the long run. Marks says, “Be a little bit better than average all of the time.” A study he did over decades of market performance showed that the top ten percent of long term investors showed up in the second quadrant decade after decade, being rarely either in the top group, or below average over those periods. He says that trying to be a top performer, rather than just being consistently better than average, usually requires taking too much risk and relying on luck. 
  • “You don’t make money by buying good stocks. You make money by buying assets for less than they are worth.” Howard is saying that even an excellent company can be a terrible investment. For example, an investor buying Cisco, Intel, or Microsoft in 2000 ended up with poor results even though those companies are still market leaders sixteen years later. Might Facebook, Amazon, or Tesla be similar today? Conversely, Marks points out that truly massive investing profits were made in the 1980’s in bonds that were more likely to default than to pay off. It’s all in the price and he encourages investors to avoid popular investments while giving those that “everyone knows are bad” a second look.   

Brief Bio

Marks started his career as an equity research analyst for Citicorp in 1969. From 1978 to 1985 he served as Vice President and senior portfolio manager focusing on convertible and high yield debt. In 1985 he joined RCW Group and again led he high yield and convertible securities group, but also started one of the first distressed debt funds in a mainstream financial institution. 

Mr. Marks periodically writes his widely read “memos to Oaktree clients” which outline his views on investing the markets and economics. Warren Buffett has remarked, “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something, and that goes double for his book”. In 2011, Marks published “The Most Important Thing: Uncommon Sense for the Thoughtful Investor” via Columbian Business School Press. 

Sources: www.oaktree.com, www.wikipedia.com , www.youtube.com 

SVANE CAPITAL, LLC IS A REGISTERED INVESTMENT ADVISER. INFORMATION PRESENTED IS FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.