The following article lists some of the fund managers that have been regarded as exceptional. This list includes investors that have created funds or managed very profitable funds. Fund managers included are Peter Lynch, Abigail Johnson, John Templeton, and John Bogle.
Peter Lynch was a fund manager best known for the management of the Fidelity Magellan Fund between 1977 to 1990. The Magellan Fund is an actively managed mutual fund that was once the largest in the U.S. While Lynch was the portfolio manager, the fund, on average, had a return of 29% per year. It also outperformed the S&P 500 11 out of 13 years.
Lynch has written several books on investment. Some of the tips include:
Invest in what you know
Do your homework
Diversify but not diworsify
Lynch is an advocate for investing in what you know. He advises investors to use their specialized knowledge to understand specific stocks and study them. For example, if an investor works in the technological field, they should be better able to predict the success of companies such as Amazon or Netflix.
The second tip corresponds closely to the first one. Just because an investor likes a product or service of a company does not mean they should buy the stock instantly. It is always important to study up on the company by examining its balance sheet, competitiveness, and growth prospects. For example, if an investor likes cameras made by Sony, they should check how much revenue is generated by cameras. If it is a small amount, then it might be unlikely for it to impact the company’s earnings.
The third tip is to diversify your portfolio but not “diworsify” it. This means while diversifying a portfolio by holding stock in different industries is good, don’t buy stocks just for the sake of diversification. For example, if the portfolio does not have exposure in oil & gas, an investor should not invest in an oil & gas company just for the exposure. Only hold the best stocks with good potential.
One of the most powerful women in investing, Abigail Johnson is the CEO and Chairman of Fidelity Investments. Fidelity investments own the Fidelity Magellan Fund managed by Peter Lynch and Lynch worked for Johnson’s father. Fidelity Investments is a private firm owned by the Johnson family, and Abigail Johnson is the fourth CEO from the family. Johnson started working for the firm in 1988 as an equity analyst and became the CEO in 2014.
Some tips Johnson has to offer in terms of being a fund manager and investing includes:
Surprises are never good
The first tip is related to being a good leader and learning to communicate with different groups. The second tip is to constantly ask questions even when things are good. If something is going well, it’s important to understand why. When setting goals, the achievement or suppression of the goals should not be a surprise either. A manager should understand how the organization moves forward toward goals that have been set.
After Johnson became the CEO, she quickly made changes to the company, such as introducing a zero-fee index fund. This was not only new for the company, but for the industry as well. Johnson’s rationale was to bring in new customers and build relationships with them that will lead to more business in the future.
Johnson also decided to eliminate the investment minimums that require investors to put in a certain amount into the funds. For her, investment minimums have lost their purpose as Fidelity has reached a size that doesn’t require additional funds. Instead, the next target is to reach as many different people as possible.
The creator of the Templeton fund, now part of Franklin Templeton, John Templeton is an innovator in global value investing and a famous fund manager. Templeton’s investment style is to invest during rough times and do it globally.
Tips from Templeton includes:
Look for the best bargains – invest globally
In terms of bargains, during WWII Templeton purchased 100 shares of every stock that was under a dollar. The investment cost him $10,000 for 104 companies, which he sold four years later for $40,000. This ties into his style of investing during tough times, as the war caused uncertainty and pushed the prices down. The stocks he purchased during the war were a bargain and, as his career continued, Templeton started looking for bargains in other countries. During his time at Yale University, he met wealthy families that were only investing in US stocks. He thought it was shortsighted to focus only in one place and that there are opportunities in other countries with lower inflation and fewer regulatory obstacles. At one point, 60% of his portfolio consisted of Japanese stocks.
There are many bumps on the road, but Templeton believes globalization will continue to bump up the stocks. In the long run, it is better to never invest in sentiment or panic and sell when the market‘s down. Instead, often the best time to buy is when the market is down because stocks are a bargain. However, there are still instances when investors should sell. This includes instances where the investor identifies a more attractive stock.
John “Jack” Bogle
John Bogle has one belief: Over the long term, investment managers cannot outperform the broad stock market averages. This led to the development of the Vanguard Group of Investment Companies, which focuses on index mutual funds and exchange-traded funds. Bogle popularized the idea of indexing, which is creating a portfolio that mirrors the performance of a stock index.
Tips from Bogle includes:
Keep costs down
Beware of the experts
Don’t get emotional
Bogle often criticized mutual funds for charging high fees. He famously said, “In investing, you get what they don’t pay for.” Vanguard charged much lower fees than the industry standards and Bogle broke other industry standards as well. For example, along with being the first to offer index funds to individual investors, he also sold mutual funds directly to investors instead of through brokers. This also helped cut costs for consumers.
Outside of charging high fees, he also questions the ability of money managers. Instead of focusing on short term results or experts that have a temporarily good record, one should focus more on the long term. Bogle also questions why so many money managers did not see the leveraged balance sheet of major US banks which caused the 2008 financial crisis.
Lastly, he tells investors to not get emotional and have “rational expectations of future return“. It’s important to ignore the small bumps in the market and not chase after stocks that have temporarily higher returns.
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