Famous Investors
The following article will list 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 includes Carl Icahn, Benjamin Graham, and Warren Buffet.
Carl Icahn
Known as a corporateCorporationWhat is a corporation? A corporation is a legal entity created by individuals, stockholders, or shareholders, with the purpose of operating for profit. The creation involves a legal process called incorporation where legal documents containing the primary purpose of the business, name, and location raider, Carl Icahn made a fortune by buying large stakesCommon StockCommon stock is a type of security that represents ownership of equity in a company. There are other terms – such as common share, ordinary share, or voting share – that are equivalent to common stock. in a company, obtain control, and direct company strategy to benefit shareholdersShareholderA shareholder can be a person, company, or organization that holds stock(s) in a given company. A shareholder must own a minimum of one share in a company’s stock or mutual fund to make them a partial owner.. Icahn believed that companies are often run by management that does not want to bring change and boardsBoard of AdvisorsA Board of Advisors is a group composed of business professionals that provides advice on how a business owner can better manage his company. Because of the informal nature of this type of board, it can be structured in a way that the owner deems necessary and most helpful that do not hold management responsible. Icahn identifies such companies, brings change, and increase shareholder valueShareholder ValueShareholder value is the financial worth owners of a business receive for owning shares in the company. An increase in shareholder value is created with a company earns a return on invested capital greater than its weighted average cost of capital. Value is created when the business performs better than expected.
Most common ways Icahn creates profit include:
- Force companies to buy back stock at a premium.
- Change management decision to add value to shareholders including breaking up companies, cut costs, and drove some companies into debtDebtDebt is the money borrowed by one party from another entity to serve a need that otherwise cannot be met outright. Many organizations use debt to procure.
While Icahn adds value to shareholders, he doesn’t always do the best for companies. In 1985, he purchased 20% shares of the 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 Karabu ticket agreement which allows Icahn to purchase flight tickets and sell it 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
Benjamin Graham was an investorInvestorAn investor is an individual that puts money into an entity such as a business for a financial return. The main goal of any investor is to minimize risk and, 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 valueIntrinsic ValueThe intrinsic value of a business (or any investment security) is the present value of all expected future cash flows, discounted at the appropriate discount rate. Unlike relative forms of valuation that look at comparable companies, intrinsic valuation looks only at the inherent value of a business on its own. of the firm. If the intrinsic value is lower than 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 priceStock PriceThe term stock price refers to the current price that a share of stock is trading for on the market. Every publicly traded company, when its shares are as “Mr. Market” that goes through optimistic and pessimistic periods. When Mr. Market is optimistic than they try to sell at a high price. But when he is pessimistic, they sell 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 accountingAccountingPublic accounting firms consist of accountants whose job is serving business, individuals, governments & nonprofit by preparing financial statements, taxes that makes a company seem better than it is. Some ratios that Graham believes is important include debt to current asset ratioDebt to Assets RatioThe Debt to Assets Ratio is a leverage ratio that helps quantify the degree to which a company's operations are funded by debt. In many cases, a high leverage ratio is also indicative of a higher degree of financial risk., current ratioCurrent Ratio FormulaThe Current Ratio formula is = Current Assets / Current Liabilities. The current ratio, also known as the working capital ratio, measures the capability of, earnings per shareEarnings Per Share Formula (EPS)The Earnings Per Share formula is a financial ratio, which counts net earnings against the total outstanding shares over a fixed period of time. A higher EPS ratio indicates a company’s ability to generate profits for common shareholders., P/EForward P/E RatioThe Forward P/E ratio divides the current share price by the estimated future (“forward”) earnings per share (EPS). For valuation purposes, a forward P/E ratio is typically considered more relevant than a historical P/E ratio. P/E ratio example, formula, and downloadable Excel template., P/BV, and dividendsStock DividendA stock dividend, a method by companies to distribute wealth to shareholders, is a dividend payment made in the form of shares rather than cash. Stock.
Warren Buffett
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 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 marketCapital MarketsIn capital markets, equity-backed securities and long-term debt are both bought and sold. Major financial regulators, such as the U.S. Securities and Exchange Commission (SEC) are responsible for overseeing the capital markets. The regulators ensure that the investments made by savers are directed toward major, 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 while being 21.
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 profitProfitProfit is the value remaining after a company’s expenses have been paid. It can be found on an income statement. If the value that remains after expenses have been deducted from revenue is positive, the company is said to have a profit, and if the value is negative, then it is said to have a loss. 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 business.
Buffett believes in the buy and hold policy. By constantly buying and selling stocks, investors are exposed to higher tax paymentsTaxable IncomeTaxable income refers to any individual's or business’ compensation that is used to determine tax liability. The total income amount or gross income is used as the basis to calculate how much the individual or organization owes the government for the specific tax period. and trading commissions. In value investing, if an investor purchase 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 tradingDay TradingThe main feature of day trading is that the purchasing and selling of securities occur within the same trading day. It means that all trading positions are liquidated by the end of the day. The main goals of day trading are discovering and leveraging short-term market inefficiencies..
Additional Resources
Thank you for reading CFI’s article on famous investors. To keep learning and advancing your career, we recommend these resources:
- Famous Fund ManagersFamous Fund ManagersThe following article will list some of the fund managers that have been regarded as exceptional. This list includes investors that have created funds or
- Stock Investing: A Guide to Value InvestingStock Investing: A Guide to Value InvestingSince the publication of "The Intelligent Investor" by Ben Graham, what is commonly known as "value investing" has become one of the most widely respected and widely followed methods of stock picking.
- Stock Investing: A Guide to Growth InvestingStock Investing: A Guide to Growth InvestingInvestors can take advantage of new growth investing strategies in order to more precisely hone in on stocks or other investments offering above-average growth potential.
- Investing for BeginnersInvesting: A Beginner's GuideCFI's Investing for Beginners guide will teach you the basics of investing and how to get started. Learn about different strategies and techniques for trading, and about the different financial markets that you can invest in.
