The following article lists some of the most famous investors, based on their ability to generate returns. This list includes investors that have managed portfolios and created new methods of investing. Famous investors in this list include Carl Icahn, Benjamin Graham, and Warren Buffet.
Known as a corporate raider, Carl Icahn made a fortune by buying large stakes in a company, obtaining control, and directing company strategy to benefit shareholders. Icahn believed that companies are often run by management that does not want to bring change and boards that do not hold management responsible. Icahn identifies such companies, brings change, and increases shareholder value.
Most common ways Icahn creates profit include:
- Force companies to buy back stock at a premium.
- Change management decisions to add value to shareholders, including breaking up companies, cutting costs, and taking on more debt.
While Icahn adds value to shareholders, he doesn’t always do the best for companies. In 1985, he purchased 20% of the shares of Trans World Airlines (TWA) and took the airline private. This moved made Icahn $469 million but put the airline $540 million in debt. He also sold TWA London routes to American Airlines. The routes were extremely profitable and valuable for TWA. When TWA filed for bankruptcy, the airline came up with a strategy called the Karabu ticket agreement which allowed Icahn to purchase flight tickets and sell them at a discount. This was disadvantageous for TWA, as they had to lower ticket costs to compete with the tickets Icahn was selling. This strategy cost TWA $100 million per year.
Benjamin Graham was an investor, economist, and professor. Known as the father of value investing, he wrote two books that showcased his knowledge: “Security Analysis”, with David Dodd, and “The Intelligent Investor”.
Tips from Graham include:
- Look at the intrinsic value, not market price
- Look out for creative accounting
- Don’t follow the herd or crowd
In value investing, the main rule is to look at the intrinsic value of the firm. If the intrinsic value is lower than the market value, an investor should hold the stock until a mean reversion. The mean reversion is where the market price and intrinsic prices converge. While talking about value investing, Graham describes the market price as “Mr. Market”, which goes through optimistic and pessimistic periods. When Mr. Market is optimistic, try to sell at a high price. But when he is pessimistic, buy at a low price. To avoid buying the stock or selling at the wrong time, always look at the intrinsic value.
Mr. Market is emotional and is always willing to buy or sell a stock at different prices. Due to this, the second tip Graham has is to avoid the herd or crowd. Since the market moves often, diligent investors will be able to buy and sell at good times if they do fundamental research.
The last tip is to look out for creative accounting that makes a company appear better than it is. Some ratios that Graham believes are important include the debt to current asset ratio, current ratio, earnings per share, P/E, P/BV, and dividends.
Warren Buffett is perhaps the most famous investor in the world and has made a fortune through his investments. Buffet’s investment style is similar to Benjamin Graham, as he was a student of Graham’s. He focuses on long term value investing and his company, Berkshire Hathaway, has produced an annual return of 20.9% over 52 years.
Tips from Buffett includes:
- Invest in yourself first
- Only make investments that you understand
- Don’t be a day trader
Firstly, Buffett states that the best investment a person can make is in their own abilities because “nobody can take away what you’ve got in yourself, and everybody has potential they haven’t used yet”. Since most people won’t be making the majority of their money from the market, it’s essential in developing skills to advance personal careers. Buffett himself invested in a course to improve his public speaking skills, which helped him sell stocks when he was very young.
The second tip is to invest only in companies that you can understand. In value investing, buying stocks of a company is like buying a piece of the company. Buffett suggests that before purchasing a stock, an investor should understand the main drivers of the business and how the business generates profit. If the business model of a company is too complicated or if an accurate prediction is needed to decide on whether the business is a good buy, an investor should look for another investment.
Buffett believes in the buy and hold policy. By constantly buying and selling stocks, investors are exposed to higher tax payments and trading commissions. In value investing, if an investor purchases an undervalued stock, the stock price will eventually increase. If the company is exceptional, then the stock value will increase exponentially as the investor holds onto the stock longer. Thus, there is no need for day trading.
Thank you for reading CFI’s article on famous investors. To keep learning and advancing your career, we recommend these additional CFI resources:
- Famous Fund Managers
- Stock Investing: A Guide to Value Investing
- Stock Investing: A Guide to Growth Investing
- Investing for Beginners