Your Money: Learn lessons from the master money makers

Only a handful of professionals outperform the markets consistently over time. But, as Jonathan Davis explains, they make investors a fortune

Who would not want to be a professional investment manager? On the face of it, there are few better jobs to be had. After football players and pop stars, there are few industries in which the top performers are so handsomely rewarded. The bull market of the past 15 years has made the profession one of the most highly sought after in the City. Salaries for those who can demonstrate that they are one of the handful of truly exceptional talents can easily run into the high six figures, with matching bonuses on top.

Investment is one of the most highly competitive businesses on earth and to produce exceptional returns year in, year out is at least as great a challenge as winning an Olympic medal. A handful of professionals do, however, have what the Nobel economics laureate Paul Samuelson calls the elusive extra "performance quotient".

Having spent a year on an in-depth study of eight of the most successful professional investors in Britain, with the idea of trying to establish what have been the major factors behind their success, I can report that the qualities you need to succeed in this demanding business are not the ones which the ordinary investor might at first imagine. The eight I looked at include some of the best-known names in the business.

All these investors have the same objective: to produce returns that exceed those of the market as a whole. But their way of setting about doing so could not be more different. All of them are versed in the art of balance-sheet analysis. All have their own distinctive valuation techniques, which they are happy to describe in detail."

Some, such as Anthony Bolton and Jim Slater, are out-and-out stockpickers. They look for exceptional performing shares, rather than taking overall views on the direction of markets.

Bolton is big on detailed company research. His two funds, which cover the UK and Europe, specialise in finding out-of-favour companies that other investors are shunning for one reason or another; something formerly owned by Robert Maxwell, or nuclear power companies which nobody understands, are the sort of things he loves. Such shares are often irrationally undervalued and make large gains when they return to favour.

Slater has his own screening system for finding growth shares that are not yet fully valued by the market, based initially on the ratio between their earnings and the rating those earnings are accorded in the market. He likes to back broad investment themes (such as the spread of sports retailing and the Millennium bug) and also keeps a very close eye on directors' share dealings. His "Zulu Principle" holds that you do best by sticking to a few companies you can really become an expert on rather than trying to work out how entire industries or the economy as a whole is moving.

Other investors prefer to take a broader view. Mark Mobius, a 60-year- old fitness freak, spends 80 per cent of his time flying around the globe in a private jet looking for bargains in more than 30 different emerging markets. Ian Rushbrook, who runs Personal Assets in Edinburgh, uses his own sophisticated computer models to help him try and decide if the markets are over-valued or not.

Nils Taube, Sir Jacob Rothschild's stock market adviser, specialises in spotting broad international trends that can be expected to head towards the UK and Europe. He was one of the first, 30 years ago, to spot the huge potential growth in supermarkets: now he is busy making money from betting on the continued consolidation of Europe's financial and banking system.

So no two methods for success are the same. As Anthony Bolton told me: "If you are going to out-perform the market, by definition you have to do something which is different from what everyone else is doing."

It all sounds very easy, at least until you try to do it. Going against conventional opinion is something most of us find difficult to do. That is why many successful investors are essentially loners.

The paradox is that there is much less mystique about investment than is often realised. Some of the adages you need to succeed - for example, to run your profits and cut your losses - are almost as old as the hills. Yet few of us actually follow the advice. Buying the most popular shares in the markets, for example those with the highest price-earnings ratios, have been repeatedly shown to be a sure-fire route to long-term underperformance. Yet most investors, many professionals included, persist in doing just that.

In principle, there is no reason, most of the experts insist, why private investors cannot do just as well as the average professional investor. Although their information sources are not so good, they have the advantages of having smaller funds to manage. They can afford to take a genuinely long-term view, a luxury that is in practice denied to most professional investment managers. In Anthony Bolton's words, there is actually very little original thought in investment. It is putting the wisdom of the ages into practice that is so difficult. Putting your money with the genuine superstars, provided you can spot them early enough, is just as good a strategy for long-term success in the stock market as any.

`Money Makers', by The Independent's Jonathan Davis, a study of Britain's most successful professional investors, and what ordinary investors can learn from them, is published by Orion Business Books at pounds 20. To order a copy at the specially discounted price of pounds 15 (including P&P) call 01903 736736 and quote the reference number MMJD.