David Kuo: Gurus are good – but don't follow blindly
Sunday 25 July 2010
Who is the best financial guru for private investors to follow? Could it be Warren Buffett or his mentor, Benjamin Graham? Perhaps it is Peter Lynch or Anthony Bolton.
Some might argue that we should not ignore Jim Slater, Jim Rogers or Neil Woodford. Therein lies the problem. Pitting the investing acumen of one financial guru against another is tantamount to telling a Brazilian that Johann Cruyff is a better footballer than Pelé.
Consider a successful investor such as Warren Buffett, whose investing approach has been dissected and scrutinised. In theory, the investing world should by now be populated with countless Buffett–like billionaires if we had followed his investing mantra. However, emulating the financial guru is not a straightforward task.
Buffett was a disciple of Benjamin Graham, arguably the most eminent technician of value investing. However, Buffett's investing style has evolved appreciably over time. In his early days, Buffett doggedly followed Graham's technique of buying assets that he referred to as "cigar butt" companies. These businesses were supposed to have a few quick "puffs" left in them, and by and large they did.
Over the years, though, Buffett has refined the technique by buying undervalued shares that he is willing to hold seemingly for ever. Ironically, one of his recent major successes was not a share that he bought and held for the long term. Instead, he flipped his $488m stake in PetroChina, which he held for just five years, for a "quick" profit of 700 per cent.
Peter Lynch is a great exponent of growth investing. He clocked an average annual return of 29 per cent from 1977 to 1990, while he was at the helm of Fidelity's Magellan Fund. Lynch would invest only in what he knew, and he would never invest in anything he could not easily illustrate with a crayon.
Lynch also devised a rule of thumb known as the peg (or price earnings growth) ratio that helped him to identify shares that could be considered cheap. He divided the price to earnings ratio by the earnings growth to arrive at a single ratio. Shares with a peg ratio of less than one were, by his yardstick, deemed to be undervalued.
By contrast, Neil Woodford is a contrarian investor who focuses on sustainable dividend yields as a way of gauging cheapness. That said he cannily avoided high-yielding bank shares ahead of the banking crisis.
Anthony Bolton is another contrarian investor. As manager of Fidelity's Special Situations fund, he invested against the tide and delivered an annual return of 20 per cent over a 25-year period. Bolton specialised in unearthing turnaround situations.
By all means follow the teachings of the gurus, but develop a style of your own that suits your temperament, your personality and your pocket.
David Kuo is director of investment website fool.co.uk
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
After the election: What will Britain's financial future look like on 8 May?
General Election 2015: How you vote next week could affect your finances
Social tenants locked into energy tariff for 40 years
Five Questions On: GB Energy's new tariff
- 2 General Election 2015: 14-year-old boy asks Nick Clegg – 'can you kill Katie Hopkins?'
- 3 University student in court for allegedly covering housemates' food in window cleaner and spit
- 4 Ryan Gosling posts tribute to 'Ryan Gosling Won't Eat His Cereal' creator Ryan McHenry
In defence of liberal democracy
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
iJobs Money & Business
£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...
£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...
£215 per day: Ashdown Group: Junior Project Manager (website, web application ...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...
Day In a Page
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings