Negative interest rates are radical measures. What are negative interest rates? Why do banks impose negative interest rates? Does it work?

When interest rates are negative, this usual relationship is reversed, and lenders have to pay to lend money or to invest.

The general idea of imposing negative rates is to discourage people or organisations from certain investments.

Why do banks impose negative interest rates?

In short, for different reasons, but usually to try to stabilise the economy in some way:

• The Swiss National Bank brought in a negative rate to try to lower the value of the Swiss franc, which has been rising as people look for safer investments.
• The European Central Bank (ECB) imposed a negative interest rate to try to stop banks from depositing money with it, and instead lend to eurozone businesses.

Does it work?

Negative interest rates are rarely brought in, and are seen as quite a radical measure.

While negative interest rates are normally aimed at institutional investors, in the long term they can have a detrimental effect on savers, if investors decide to recoup the costs of the rate by levying charges on consumers.

-------------------

What are negative interest rates?

Tom EspinerBusiness reporter18 December 2014

• rom the sectionBusiness

Switzerland's National Bank (SNB) is to impose an interest rate of minus 0.25% on large amounts of money deposited in the country.

The negative rate will apply to "sight deposits" - a type of instant access account for banks and large companies - of more than 10m Swiss francs (£6.5m).

But why would a bank want to cut the value of deposits it holds, or charge depositors?

Image captionSwiss National Bank wanted to lower the value of the Swiss franc

What are negative interest rates?

Normally borrowers pay lenders a rate, typically as an annual percentage, on the amount borrowed.

So, for example, when people deposit money in a bank, they normally expect to get back some form of interest on the account.

However, when interest rates are negative, this relationship is reversed, and lenders have to pay to lend money or to invest.

The general idea of imposing negative rates is to discourage people or organisations from certain investments.

Image captionRussians have seen the value of the rouble fall by around a half since the beginning of the year

Why do banks impose negative interest rates?

In short, for different reasons, but usually to try to stabilise the economy in some way.

The Swiss National Bank brought in a negative rate to try to lower the value of the Swiss franc, which has been rising as people look for safer investments.

Factors such as a sharp drop in the value of the Russian rouble and steeply falling oil prices have spooked investors.

Switzerland normally sees money flowing into its coffers in difficult economic times.

However, if the currency is too strong, this can hit exports, as products become more expensive.

In June, the European Central Bank (ECB) imposed a negative interest rate, but for different reasons.

It wanted to try to stop banks from depositing money with it, and instead lend to eurozone businesses.

Image captionThe ECB remains under pressure to act to kick-start the eurozone economy

Does it work?

How effective negative rates are depends on many different variables.

In the case of Switzerland, the immediate impact was a temporary fall in the franc against the euro, but the currency was trading slightly higher by late morning.

Its longer-term impact remains to be seen.

The ECB's negative interest rate was announced as part of a raft of measures designed to stimulate the eurozone economy, which continues to stagnate.

Are we going to see more of it?

It very much depends on what banks want to achieve, and whether they think it's going to work.

Negative interest rates are rarely brought in, and are seen as quite a radical measure.

While negative interest rates are normally aimed at institutional investors, in the long term they can have a detrimental effect on savers, if investors decide to recoup the costs of the rate by levying charges on consumers.

Besides, central banks have a range of other measures available to them to stimulate the economy.

For example, since the global financial crisis, both the Bank of England and the Federal Reserve have used so-called "quantitative easing" - buying assets to boost the supply of money - as an economic stimulus.

The Bank of England considered imposing a negative bank rate in February 2013, but decided against it in May of that year.

However, it said at the time that negative interest rates remained an option.

With the global economy still fragile, negative rates remain a tool that banks could use.

http://www.bbc.com/news/world-europe-30530534

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https://www.techimo.com/forum/imo-community/313590-negative-interest-rates-today-boj.html

The Bank of Japan surprised markets Jan. 29 by adopting a negative interest-rate strategy. The move came 1 1/2 years after the European Central Bank became the first major central bank to venture below zero. With the fallout limited so far, policy makers are more willing to accept sub-zero rates. The ECB cut a key rate further into negative territory Dec. 3, even though President Mario Draghi earlier said it had hit the “lower bound.” It now charges banks 0.3 percent to hold their cash overnight. Sweden also has negative rates, Denmark used them to protect its currency’s peg to the euro and Switzerland moved its deposit rate below zero for the first time since the 1970s. 

Since central banks provide a benchmark for all borrowing costs, negative rates spread to a range of fixed-income securities. By the end of 2015, about a third of the debt issued by euro zone governments had negative yields. That means investors holding to maturity won’t get all their money back. Banks have been reluctant to pass on negative rates for fear of losing customers, though Julius Baer began to charge large depositors.

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https://www.techimo.com/forum/imo-community/313590-negative-interest-rates-today-boj.html

TOKYO — The Bank of Japan said Friday that it would adopt a negative interest rate policy for the first time, as a sputtering economy, stubbornly low inflation and turbulent global financial markets threaten to undermine Prime Minister Shinzo Abe’s economic-revival plan.

The central bank said it cut the deposit rate it pays on cash parked at the BOJ by commercial banks in excess of legally required reserves, to minus 0.1% from the previous plus 0.1%. The goal was to push down borrowing costs across a broad time spectrum to stimulate inflation, the bank said.

The bank decided to introduce negative rates to “pre-empt the manifestation of [downside] risk and to maintain momentum to achieve the price stability target of 2%,” the BOJ said in a statement released after a two-day policy meeting.
“We will cut the interest further into negative territory if judged as necessary,” the central bank said.
The vote count was 5-4 in favor of negative interest rates.

James Simons - Mathematics, Common Sense, and Good Luck: My Life and Careers (Brilliant chap)

How to win the lose's game

The Best Video to comprehend how the Economic Machine Works.

Published on 22 Sep 2013

Economics 101 -- "How the Economic Machine Works."

Created by Ray Dalio this simple but not simplistic and easy to follow 30 minute, animated video answers the question, "How does the economy really work?" Based on Dalio's practical template for understanding the economy, which he developed over the course of his career, the video breaks down economic concepts like credit, deficits and interest rates, allowing viewers to learn the basic driving forces behind the economy, how economic policies work and why economic cycles occur.


To learn more about Economic Principles visit: http://www.economicprinciples.org.


[Also Available In Chinese] 经济这台机器是怎样运行的: http://www.youtube.com/watch?v=-ZbeYe...

3 Big Risks Investors Must Know About A Real Estate Investment Trust

By Stanley Lim Peir Shenq, CFA

The Singapore stock market is home to some of the largest real estate investment trusts in the region. REITs such as Ascendas Real Estate Investment Trust (SGX: A17U), CapitaLand Mall Trust (SGX: C38U), Mapletree Logistics Trust (SGX: M44U)and Mapletree Industrial Trust (SGX: ME8U) all have a market capitalisation of over S$2 billion each.

Land is a very valuable commodity in Singapore given that it is a tiny island nation. Moreover, REITs in Singapore tend to offer high yields as well, relative to the broader market.

But, REITs are far from being a risk-free investment. Investors need to understand how REITs are structured in order to gain better awareness of the risks involved. Here are three big risks that I’m watching with REITs.

Lack of a safety net

REITs are required by regulation to distribute 90% of their taxable income each year as distributions to enjoy tax-exemption. That would explain why most REITs tend to have high dividend yields.

But, this means that REITs are not able to build up a cash reserve to strengthen their balance sheets and protect themselves against any adverse economic conditions. The need to distribute most of their income would also mean that REITs lack the cash reserves to invest in more properties to grow their distribution.

Therefore, it is common to see REITs issue rights or conduct private placements as a way to raise more capital from time to time. For an investor, there’s a risk that your investment in a REIT may get diluted when it conducts such corporate exercises.

Interest rate risk

The aforementioned inability of REITs to conserve cash would also mean that they’d have to depend on debt for financing. REITs with significant debt on their balance sheets may be facing interest rate risk.

In the event that interest rates rise, this may cause a hike in a REIT’s interest expenses. In turn, the amount of distributable income that the REIT can generate might drop significantly, thus negatively impacitng the distribution yield of a REIT. When this happens, the unit price of a REIT may be affected as REIT-investors may dispose of it in search of higher yields.

Use of short-term debt

Generally speaking, the bulk of a REIT’s assets are properties that can last for decades or even centuries. In other words, a REIT’s assets are mainly long-term in nature. But, the borrowings of most REITs are relatively short-term, with typically less than 10 years to maturity.

As such, this creates a type of asset and liability mismatch, in the sense that REITs are using short-term liabilities (debt) to finance long-term assets (properties). In fact, REITs have a constant need to refinance their borrowings while holding onto the same assets.

In the event of liquidity drying up, such as during the Global Financial Crisis of 2008-09, a REIT may be caught in a dangerous position of being unable to find any refinancing options when its debt comes due. If that happens, the REIT would most likely have to undertake a huge rights issue or private placement – at a deeply discounted unit price to boot.

In this scenario, an investor in the REIT may see his or her stake diluted sharply (from a large private placement) and/or be required to fork out a large sum of money (from a rights issue) to reinvest in the REIT and save it from financial difficulties.

Foolish Summary

REITs can be great investments. But, investors should be aware that a great investment opportunity does not mean that it is risk-free. Understanding the key risks of REITs would give an investor an edge when it comes to managing his or her investment portfolio.

https://www.fool.sg/2016/02/01/3-big-risks-investors-must-know-about-a-real-estate-investment-trust/?source=facebook

Secrets of Long-Term Investing Revealed

“........... long-term investing isn’t about having a great system, or a superior analytic intellect, or better access to information, or even the best advice money can buy.  Long-term investing is about character, about depth of vision and the cultivation of patience, about who you are and who you’ve made yourself to be”

The Single Best Investment, page 149

What is long-term investing? 

Long-term investing is the process of buying and holding investment securities you believe will compound investor wealth indefinitely into the future.

Why You Need to Become a Long-Term Investor

There are 3 good reasons to become a long-term investor:

1. It reduces fees
2. It requires less of your time
3. It is highly effective

Long-term investing is so successful is because of its beneficial psychological ramifications.  

If you invest for the long-term, you will focus on businesses with strong and durable competitive advantages that have a chance of compounding your wealth for decades, not days.

Long-Term Investing Strategy

The strategy long-term investors follow is straight-forward:

• Identify companies with durable competitive advantages
• Be sure these companies are in slow changing industries
• Invest in these companies when trading at fair or better prices

Three favorite slow changing industries are:

• Insurance
• Health care
• Food and beverage

To find if a company is trading at ‘fair or better prices’, a few metrics are important.

• If the company is trading below the market price-to-earnings ratio, its peer’s price-to-earnings ratio, and its 10 year historical average price-to-earnings ratio, it is likely undervalued.  
• These 3 relative price-to-earnings ratios will help to paint a picture of if a stock is ‘in favor’ or ‘out of favor’.  

As a general rule, it’s best to buy great businesses at a discount – when they are out of favor.

Another good metric to look at for determining value is a company’s expected payback period.

• Payback period is calculated using an expected growth rate and a stock’s current dividend yield.  
• The higher the dividend yield and expected growth rate, the lower the payback period.  
• The payback period is the number of years it will take an investment to pay you back.  
• Obviously, the lower the payback period, the better.

Long-Term Investing Examples

Warren Buffett’s investment history is perhaps the best example of long-term investments.  Three of his longest running investments are below:

• Wells Fargo (WFC) – 25% of his portfolio – First purchased in 1989
• Coca-Cola (KO) – 15% of portfolio – First purchased in 1988
• American Express (AXP) – 11% of portfolio – First purchased in 1964

All of these three investments are 25 years old or older.

The American Express investment is especially impressive.  Warren Buffett has held American Express for over 50 years!

Stocks for Long-Term Investors

• Find high quality dividend growth stocks suitable for long-term investors.
• Identify high quality dividend growth stocks trading at fair or better prices.
• Have a brief list of blue-chip stocks worthy of long-term investors that are currently trading at fair or better prices.

For example:  One for each sector of the economy is shown:

• Basic Materials: Phillips 66 (PSX)
• Consumer Goods: General Mills (GIS)
• Financial: Aflac (AFL)
• Health Care: Johnson & Johnson (JNJ)
• Industrial Goods: Deere & Company (DE)
• Service: W.W. Grainger (GWW)
• Technologies: Verizon Wireless (VZ)
• Utilities: Southern Company (SO)

Long-Term Investing Is Difficult

Long-term investing is not easy.

It is psychologically difficult to hold a stock when its price is declining.

Holding through price declines takes real conviction (remember the marriage analogy?).

The nearly infinite liquidity of the stock market combined with the ease of trading makes selling stocks something you can do on a whim.

But just because you can, doesn’t mean you should.

The constant stream of stock ticker price movements also coerces individual investors into trading unnecessarily.

• Does it really matter that a stock is up 1% today, or down 0.3% this hour?  
• Have the long-term prospects of the business really changed?  

Probably not.

To compound these problems even further, the financial media promotes rapid action.

• To garner views and attention, financial pundits have become LOUD.  
• They are always promoting the next great stock to buy, or which one MUST be sold.

The Cure:  Watch Dividends, Not Stock Prices

Stock prices lie.

• They signal a business is in steep decline, when it isn’t.  
• They say a company is worth 3x as much as it was 3 years ago, when the underlying business has only grown 50%.  
• Stock prices only represent the perception of other investors.  
• They do not and cannot show the real total returns an investment will generate.

Instead of watching stock price, avoid them completely.

Look at dividend income instead.

• Dividend do not lie.  
• A business simply cannot pay rising dividends for any protracted period of time without the underlying business growing as well.

Dividends are much less volatile than stock prices.

• Dividends reflect the real earnings power of the business.  
• As a result, it makes sense to track dividend income rather than stock price movement.  
• After all, don’t you care what your investment pays you more than what people think about your investment?

The Difference Between Buy & Hold and Long-Term Investing

There is a difference between buy and hold (sometimes called buy and pray) investing and long-term investing.

Buy and hold investing typically means buying and holding no matter what.

That’s not what long-term investing is about.

Sometimes, there is a very good reason to sell a stock.  It just happens much less frequently than most people believe.

Two reasons to sell a stock:

1. If it cuts or eliminates its dividend payments
2. If it becomes extremely overvalued

The first reason to sell is intuitive.

• When a stock cuts its dividend, it violates your reason for investing. 

The second reason to sell is in the case of an extreme overvaluation.

• I’m not talking about when a stock moves from a price-to-earnings ratio of 15 to 25.  
• I’m talking about when a stock is trading for a ridiculous price-to-earnings ratio; something like 40+.  
• An important caveat to remember is to always use adjusted earnings for this calculation.  
• If a cyclical stock’s earnings temporarily fall from $5.00 per share to $1.00 per share, and the price-to-earnings ratio jumps from 15 to 75, don’t sell.  
• In this instance, the price-to-earnings ratio is artificially inflated because it is not reflecting the true earnings power of the business.  

Selling due to extreme valuations should only occur very rarely, during extreme bouts of irrational market exuberance.

Final Thoughts

Investing for the long run is simple, but not easy.

It is psychologically difficult.

The amazing success records of investors who believe a long-term outlook is critical for favorable investment returns lends credibility to the idea of long-term investing.

The financial media does not typically discuss the merits of long-term investing because it does not generate fees for the financial industry, and it does not lend itself to flashy headlines or catchy sound bites.

Invest in high quality dividend growth stocks for the long-run.

• High quality dividend growths stocks with strong competitive advantages offer individual investors the best available mix of current income, growth, and stability as compared to other investment strategies and styles.

Long-term investing requires conviction, perseverance, and the ability to do nothing when others are being very active with their portfolios.

Do you have what it takes to invest for the long run?

Read:
http://www.smarteranalyst.com/2015/11/16/secrets-of-long-term-investing-revealed/

http://www.amazon.com/The-Single-Best-Investment-Creating/dp/0965175081/ref=cm_cr_pr_product_top?ie=UTF8  (Click on the book to get a sample of the pages within.)

THE 10 BEST INVESTORS IN THE WORLD

Warren Buffett
Charlie Munger
Joel Greenblatt
John Templeton
Benjamin Graham
Philip Fisher
Mohnish Pabrai
Walter Schloss
Peter Lynch
Seth Klarman



Warren Buffett (1930)

"Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down."

Warren Buffett, born on August 30, 1930 in Omaha, Nebraska, is known as the world's best investor of all time. He is among the top three richest people in the world for several years in a row now, thanks to the consistent, mind-boggling returns he managed to earn with his investment vehicle Berkshire Hathaway. The funny thing is that Buffett does not even care that much about money. Investing is simply something he enjoys doing. Buffett still owns the same house he bought back in 1958, hates expensive suits, and still drives his secondhand car.

Investment philosophy:
 Focuses on individual companies, rather than macro-economic factors
 Invests in companies with sustainable competitive advantages
 Prefers becoming an expert on a few companies over major diversification
 Does not believe in technical analysis
 Bases his investment decisions on the operational performance of the underlying businesses
 Holds on to stocks for an extremely long period, some stocks he never sells
 Uses price fluctuations to its advantage by buying when undervalued and selling when overvalued with respect to intrinsic value
 Puts much emphasis on the importance of shareholder friendly, capable management
 Beliefs margin of safety are the three most important words in investing


Charlie Munger (1924)

"All intelligent investing is value investing — acquiring more than you are paying for."

Charlie Munger is vice-chairman of Berkshire Hathaway, Warren Buffett's investment vehicle. Even though Buffett and Munger were born in Omaha, Nebraska, they did not meet until 1959. After graduating from Harvard Law School, Munger started a successful law firm which still exists today. In 1965 he started his own investment partnership, which returned 24.3% annually between 1965 and 1975, while the Dow Jones only returned 6.4% during the same period. In 1975 he joined forces with Warren Buffett, and ever since that moment Charlie Munger has played a massive role in the success of Berkshire Hathaway. While Buffett is extrovert and a pure investor, Munger is more introvert and a generalist with a broad range of interests. The fact that they differ so much from each other is probably why they complement each other so well.

Investment philosophy:
 Convinced Buffett that stocks trading at prices above their book value can still be interesting, as long as they trade below their intrinsic value
 Has a multidisciplinary approach to investing which he also applies to other parts of his life ("Know a little about a lot")
 Reads books continuously about varied topics like math, history, biology, physics, economy, psychology, you name it!
 Focuses on the strength and sustainability of competitive advantages
 Sticks to what he knows, in other words, companies within his "circle of competence"
 Beliefs it is better to hold on to cash than to invest it in mediocre opportunities
 Says it is better to be roughly right than precisely wrong with your predictions


Joel Greenblatt (1957)

“Choosing individual stocks without any idea of what you’re looking for is like running through a dynamite factory with a burning match. You may live, but you’re still an idiot.”

Joel Greenblatt definitely knows how to invest. In 1985 he started his investment fund Gotham Capital, ten years later, in 1995, he had earned an incredible average return of 50% per year for its investors. He decided to pay his investors their money back and continued investing purely with his own capital. Many people know Joel Greenblatt for his investment classic The Little Book That Beats The Market* and his website magicformulainvesting.com. Greenblatt is also an adjunct-professor at the Columbia Business School.

Investment philosophy:
 Buys good stocks when they are on sale
 Prefers highly profitable companies
 Uses the Normalized Earnings Yield to assess whether a company is cheap
 Beliefs thorough research does more to reduce risk than excessive diversification (he often has no more than 8 companies in his portfolio)
 Largely ignores macro-economical developments and short term price movements


John Templeton (1912 -2008) 

"If you want to have a better performance than the crowd, you must do things differently from the crowd."

The late billionaire and legendary investor, John Templeton, was born in 1912 as a member of a poor family in a small village in Tennessee. He was the first of his village to attend University, and he made them proud by finishing economics at Yale and later a law degree at Oxford. Just before WWII, Templeton was working at the predecessor of the now infamous Merrill Lynch investment bank. While everyone was highly pessimistic during these times, Templeton was one of the few who foresaw that the war would give an impulse to the economy, rather than grind it to a halt. He borrowed $10.000 from his boss and invested this money in each of the 104 companies on the US stock market which traded at a price below $1. Four years later he had an average return of 400%! In 1937, in times of the Great Depression, Templeton started his own investment fund and several decennia later he managed the funds of over a million people. In 2000 he shorted 84 technology companies for $200.000, he called it his "easiest profit ever". The beauty is that despite all his wealth, John Templeton had an extremely modest lifestyle and gave much of it away to charitable causes.

Investment philosophy:
 Contrarian, always going against the crowd and buying at the point of maximum pessimism
 Has a global investment approach and looks for interesting stocks in every country, but preferably countries with limited inflation, high economical growth, and a movement toward liberalization and privatization
 Has a long term approach, he holds on to stocks for 6 to 7 years on average
 Focuses on extremely cheap stocks, not necessarily on "good" stocks with a sustainable competitive advantage, like Warren Buffett
 Beliefs in patience, an open-mind, and a skeptical attitude against conventional wisdom
 Warns investors for popular stocks everyone is buying
 Focuses on absolute performance rather than relative performance
 A strong believer in the wealth creating power of the free market economy



Benjamin Graham (1894 - 1976) 

"Price is what you pay, value is what you get."

Columbia Business School professor Benjamin Graham is often called "The Father of Value Investing". He was also Warren Buffett's mentor and wrote the highly influential book The Intelligent Investor, which Buffett once described as the best book on investing ever written. Graham was born in England in 1894, but he and his family moved to the United States just one year later. His official name was Grossbaum, but the family decided to change this German sounding name to Graham during the time of the First World War. Graham was a brilliant student and got offered several teaching jobs on the University, but instead he decided to work for a trading firm and would later start his own investment fund. Due to the use of leverage, his fund lost a whopping 75% of its value between 1929 and 1932, but Graham managed to turn things around and managed to earn a 17% annualized return for the next 30 years. This was way higher than the average stock market return during that same period. In total, Graham taught economics for 28 years on Columbia Business School.

Investment philosophy:
 Focuses more on quantitative, rather than qualitative data
 First step is to look for stocks trading below 2/3rd of net current asset value (NCAV)*
 Prefers companies which pay dividends
 Looks for companies with a consistently profitable history
 Companies should not have too much long term debt
 Earnings should be growing
 Is willing to pay no more than 15 times the average earnings over the past three years
 Diversifies to spread the risk of individual positions
 Emphasizes the importance of a significant Margin of Safety
 Profits from irrational behavior caused by the manic-depressive "Mr. Market"
 Warns that emotions like fear and greed should play no role in your investment decisions

*NCAV = current assets - total liabilities



Philip Fisher (1907 - 2004) 

"I don't want a lot of good investments; I want a few outstanding ones."

Philip Fisher became famous for successfully investing in growth stocks. After studying economics degree at Stanford University, Fisher worked as an investment analyst before starting his own firm, Fisher & Co. This was in 1931, during the times of the Great Depression. Fisher's insights have had a significant influence on both Warren Buffett and Charlie Munger. Philip Fisher is also author of the powerful investment book Common Stocks and Uncommon Profits, which has a quote from Buffett on its cover which reads: "I am an eager reader of whatever Phil has to say, and I recommend him to you."

Investment philosophy:
 Dislikes technical analysis
 Does not belief in "market timing"
 Prefers a concentrated portfolio with around 10 to 12 stocks
 Emphasizes the importance of honest and able management
 Beliefs you should only invest in companies which you can understand
 Warns that you should not follow the masses, but instead have patience and think for yourself
 Companies should have a strong business model, be innovative, highly profitable, and preferably a market leader
 Has a focus on growth potential of both companies and industries
 Buys companies at "reasonable prices" but does not specify what "reasonable" is to him
 A true "buy & hold" investor who often holds on to stocks for decades
 Beliefs great companies purchased at reasonable prices and held for a long time are better investments than reasonable companies bought at great prices
 Has a "scuttlebutt" approach to doing research by asking questions to customers, employees, competitors, analysts, suppliers, and management to find out more about the competitive position of a company and its management
 Only sells when a company starts experiencing issues with its business model, competitive positioning, or management



Mohnish Pabrai (1964)

“Heads, I win; tails, I don’t lose much. “

Mohnish Pabrai has once been heralded as "the new Warren Buffett" by the prestigious American business magazine Forbes. While this seems like big words, you might start to understand why Forbes wrote this when you look at the performance of Pabrai's hedge funds, Pabrai Investment Funds, which have outperformed all of the major indices and 99% of managed funds. At least, that was before his funds suffered significant losses during the recent financial crisis because of their exposure to financial institutions and construction companies. Still, there is much we can learn from his low-risk, high-reward approach to investing, which he describes in his brilliant book The Dhandho Investor: The Low-Risk Value Method to High Returns.

Investment philosophy:
 Points out that there is a big difference between risk and uncertainty
 Looks for low-risk, high-uncertainty opportunities with a significant upside potential
 Only practices minor diversification and usually has around 10 stocks in his portfolio
 Beliefs stock prices are merely "noise"
 Used to buy reasonable companies at great prices, but now wants to focus more on quality companies with a sustainable competitive advantage and shareholder friendly management



Walter Schloss (1916 - 2012) 

"If a stock is cheap, I start buying." While Walter Schloss might not be the most well-known investor of all time, he was definitely one of the best investors of all time. Just like Buffett, Walter Schloss was a student of Benjamin Graham. Schloss is also mentioned as one of the "Super Investors" by Buffett in his must-read essay The Super Investors of Graham-And-Doddsville. An interesting fact about Walter Schloss is that he never went to college. Instead, he took classes taught by Benjamin Graham after which he started working for the Graham-Newton Partnership. In 1955 Schloss started his own value investing fund, which he ran until 2000. During his 45 years managing the fund, Schloss earned an impressive 15.3% return versus a return of 10% for the S&P500 during that same period. Just like Warren Buffett and John Templeton, Walter Schloss was known to be frugal. Schloss died of leukemia in 2012 at age 95.

Investment philosophy:
 Practiced the pure Benjamin Graham style of value investing based on purchasing companies below NCAV
 Generally buys "cigar-butt" companies, or in other words companies in distress which are therefore trading at bargain prices
 Regularly used the Value Line Investment Survey to find attractive stocks
 Minimizes risk by requiring a significant Margin of Safety before investing
 Focuses on cheap stocks, rather than on the performance of the underlying business
 Diversified significantly and has owned around 100 stocks at a time
 Keeps an open mind and even sometimes shorts stocks, like he did with Yahoo and Amazon just before the Dot-Com crash
 Likes stocks which have a high percentage of insider ownership and which pay a dividend
 Is not afraid to hold cash
 Prefers companies which have tangible assets and little or no long-term debt 10



Peter Lynch (1944)

"Everyone has the brain power to make money in stocks. Not everyone has the stomach."

Peter Lynch holds a degree in Finance as well as in Business Administration. After University, Lynch started working for Fidelity Investments as an investment analyst, where he eventually got promoted to director of research. In 1977, Peter Lynch was appointed as manager of the Magellan Fund, where he earned fabled returns until his retirement in 1990. Just before his retirement he published the bestseller One Up On Wall Street: How To Use What You Already Know To Make Money In The Market. Just as many of the other great investors mentioned in this document, Lynch took up philanthropy after he amassed his fortune.

Investment philosophy:
 You need to keep an open mind at all times, be willing to adapt, and learn from mistakes
 Leaves no stone unturned when it comes to doing due diligence and stock research
 Only invests in companies he understands
 Focuses on a company's fundamentals and pays little attention to market noise
 Has a long-term orientation
 Beliefs it is futile to predict interest rates and where the economy is heading
 Warns that you should avoid long shots
 Sees patience as a virtue when it comes to investing
 Emphasizes the importance of first-grade management
 Always formulates exactly why he wants to buy something before he actually buys something



Seth Klarman (1957) 

“Once you adopt a value-investment strategy, any other investment behavior starts to seem like gambling.“

Billionaire investor and founder of the Baupost Group partnership, Seth Klarman, grew up in Baltimore and graduated from both Cornell University (economics) and the Harvard Business School (MBA). In 2014 Forbes mentioned Seth Klarman as one of the 25 Highest-Earning hedge funds managers of 2013, a year in which he generated a whopping $350 million return. Klarman generally keeps a low profile, but in 1991 he wrote the wrote a book Margin of Safety: Risk Averse Investing Strategies for the Thoughtful Investor, which became an instant value investing classic. This book is now out of print, which has pushed the price up to over $1500 for a copy!

Investment philosophy:
 Is extremely risk-averse and focuses primarily on minimizing downside risk
 Does not just look for cheap stocks, but looks for the cheapest stocks of great companies
 Writes that conservative estimates, a significant margin of safety, and minor diversification allow investors to minimize risk despite imperfect information
 Warns that Wall Street, brokers, analysts, advisors, and even investment funds are not necessarily there to make you rich, but first and foremost to make themselves rich
 Often invests in "special situations", like stocks who filed for bankruptcy or risk-arbitrage situations
 Suggests to use several valuation methods simultaneously, since no method is perfect and since it is impossible to precisely calculate the intrinsic value of a company
 Is known for holding a big part of its portfolio in cash when no opportunities exist
 Beliefs investors should focus on absolute performance, rather than relative performance
 Emphasizes that you should find out not only if an asset is undervalued, but also why it is undervalued
 Is not afraid to bet against the crowd and oppose the prevailing investment winds
 Discourages investors to use stop-loss orders, because that way they can't buy more of a great thing when the price declines


Final words 

I hope you enjoyed reading how some the best investors in the world think about investing. You might have noticed some common themes, like buying companies for less than they are worth. And while they all practice this value investing approach, there are also notable differences between the strategies of these masters of investing. Where Warren Buffett runs a concentrated portfolio and focuses on "good" companies with a sustainable competitive advantage, Walter Schloss managed to earn impressive returns by simply buying a diverse set of extremely cheap companies. As Bruce Lee once said: "Adapt what is useful, reject what is useless, and add what is specifically your own.”


https://www.valuespreadsheet.com/best.pdf