Secrets of Self-Made Billionaire
Investors
Warren Buffett, the world’s
greatest investor, was born in 1930. He became a child of the Great Depression.
Now, his value in excess of $50 billion.
George Soros was born
the same year, and became a child of the Great Depression, the Holocaust and
WWII. According to Forbes.com, his value over $19 billion.
Carl Icahn was born in
1936. He was once very broke he had to sell his car to feed himself. Forbes.com
says he's worth around $20 billion today.
They were started with
nothing. All went up billionaires. All did it by INVESTING.
At first glance, they
don't seem to have much in common... Buffett buys stocks and whole companies
and says his favorite holding period for investments is "forever."
Soros became a billionaire by making huge leveraged trades in stocks and
currencies. Icahn buys controlling stakes in public companies and badgers
management to sell assets, buy back shares and do anything to realize hidden
value.
But they do have some
traits in common; a few core investing ideas that helped make them billionaires. Like every great secret of life, this one is
hiding in plain sight. These three self-made billionaire investors...
1. Don't diversify
2. Avoid risk
3. Don't care what anyone else thinks
1: DON'T DIVERSIFY.
CONCENTRATE.
Consider what your
greatest source of wealth generation is likely: your career. You probably
haven't diversified at all in your career. Even if you tried many different
careers, you were never doing several of them at once. And, even if you do more
than one job, it's highly likely you spend the great majority of your time at
just one of them and that just one provides the great majority of your income.
Why should investing be
any different?
For many years, Buffett
had most of Berkshire Hathaway's money in just four stocks: American Express,
Coca-Cola, Wells Fargo, and Gillette. Today, most of Berkshire Hathaway's money
is still in just four stocks: Wells Fargo, Coca-Cola, IBM, and American Express.
2: AVOID RISK
When Carl Icahn bought
Tappan shares, he was paying around $7.50 each. But he knew by looking at the
balance sheet that the company was clearly worth $20 if it were broken up.
That's a 62% discount to fair value, a very safe bet.
After Tappan, Icahn targeted
a real estate investment trust called Baird and Warner. At the time he found
it, the stock was trading for $7.89. Its book value was $14. That's a 44%
discount to book value, and a generous margin of safety.
Soros manages risk
differently than Icahn and Buffett. He says the first thing he's looking to do
is survive, and he's known to beat a hasty retreat when he's wrong. He keeps
loss potential in mind before trading. When he shorted $10 billion of British
pounds in 1992, he first calculated that his worst-case loss scenario was about
4%.
3: THINK FOR THEMSELVES
Wall Street wouldn't buy
shares of The Washington Post when Buffett started buying it
in February 1973. That's true, even though most Wall Street analysts
acknowledged that this was a $400 million company selling for $80 million. They
were too scared because the overall market had been falling for some time.
Soros talks to lots of
people to get a feel for where a market is going. But he never talks about what
he's buying or selling. He just does it.
Carl Icahn doesn't need
Wall Street, because he has his own research team. Icahn's people comb through
thousands of listed companies to find the ones that are right for Icahn's
corporate raider style. Icahn has to have his own research team. If he bought
research from Wall Street, the whole world would figure out what he was doing,
and it would become difficult to buy shares cheaply.
If you really want to be successful in stocks, these rules will be your foundation.
Source:
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