The One Thing All Legendary Investors Have In Common

The One Thing All Legendary Investors Have in Common When it Comes to Making Money by Jae jun, Old School Value

How do pros make money?

That’s the title from one of the chapters from What I Learned Losing a Millions Dollars that I want to share.

As I mentioned the other day, it’s full of lessons, advice and stories on how NOT to lose money.

That’s right.

The entire book is dedicated to not losing money.

It’s so different to all the “strategies to make money quickly in the market” type of books.

But back to the first question.

How do the pros make money?

Let me share the lesson via a roundabout fashion. Because that’s where the fun is.

Legendary Investors Do NOT Agree With Each Other

You’d think that all these famous and guru status investors will have some sort unanimous method of making money.

But the truth is, you won’t get much trying to learn how they made money.

You are much likely to get conflicting advice from the pros which can confuse the heck out of anyone.

Buffett is telling you to concentrate, but John Templeton tells you to diversify.

Ultimately, most people decide who to listen to based on who they like or know about better.

#1 on the list is obviously Buffett.

He is quoted like crazy.

But plenty of other gurus say the exact opposite.

Let’s take a look at some.

Conflicting Advice From the Gurus

On diversifying…

David Einhorn

We believe in constructing the portfolio so that we put our biggest amount of money in our highest-conviction idea, and then we view the other ideas relative to that.

John Templeton

Diversification should be the corner stone of your investment program.

On Averaging Down…

Peter Lynch

You have to understand the business of a company you have invested in, or you will not know whether to buy more if it goes down.

William O’Neil

Averaging down is an amateur strategy that can produce serious losses.

On Buying and Selling…

William O’Neil

If a company is doing well and continues to earn an attractive return on capital, I’m in no hurry to sell.

John Dorfman

We used to have a fairly rigid rule that as soon as something went above the market multiple we’d sell, but we thought we too often were leaving money on the table so we now use trailing stops.

With all this great, but conflicting advice, what are you supposed to listen to and apply?

The One Thing All Pros Have in Common

When it comes to making money, there are so many ways to do it.

All of the gurus apply their own unique touch to the analysis and investment process.

And unfortunately, it’s not something that you or I can replicate.

Many have tried, but that’s why there is only one Warren Buffett.

But there is one thing that all the famous investors have in common.

Don’t lose money.

No matter how you cut it, every great investor places a big emphasis on not losing money.

What’s rules number 1?

Never lose money.

Rule number 2?

Never forget rule number 1.

The pros could all make money in contradictory ways because they all know how to control their losses.

It’s the small investor who focuses constantly on the upside that loses money uncontrollably in the markets and then tries to brainwash everyone they know that the stock market is a gamble.

And when it comes to protecting the downside and limiting risk, there is no better investor than Seth Klarman.

Seth Klarman

If you’re more focused on downside than upside, if you’re more interested in return of capital than return on capital, if you have any sense of market history, then there’s more than enough to be concerned about.

I also highly recommend you read Seth Klarman’s 20 lessons the 2008 crash can teach you about investing.