5 Wall Street Masterminds, For Bear Market Guidance
The world’s financial markets are subjecting investors to dizzying, intra-day roller coaster rides, with no end in sight. Risks are mounting with each passing day: the Russia-Ukraine war, hot inflation, rising interest rates, the lingering pandemic, political dysfunction in Washington, a global economic slowdown…you name it.
Stocks are officially in bear market territory. Amid all the bad news and gloomy predictions, how can you determine when the market is too high or low, or which investments to buy and sell?
For ways to cope with these nerve-wracking conditions, I suggest you turn to the timeless wisdom of the “super investors.”
Below, I examine the basic precepts of five Wall Street masterminds, to glean investing insights that can help you beat the bear…or when the time comes again, ride the bull.
Let’s see how these investment wizards became rich and what they have to teach us today.
1) Warren Buffett
As chairman, CEO and largest shareholder of Berkshire Hathaway (NYSE: BRK.A, BRK.B), Buffett follows the school of “value investing” pioneered by Benjamin Graham, whereby he pinpoints securities with prices that are unjustifiably low according to their inherent worth.
However, Buffett takes value investing to a deeper level. He once famously said: “In the short term the market is a popularity contest; in the long-term it is a weighing machine.” He doesn’t necessarily wait for the market to eventually reward the merits of underappreciated stocks; he chooses stocks according to their potential as a company.
Buffett looks for strong balance sheets, good products, market domination, and high-quality management. He emphasizes long-term ownership of a company, not just the chance for capital appreciation based on market dynamics.
How well does he do? Buffett boasts a net worth of more than $102.2 billion. Investors have learned that it pays to follow the buy-and-sell decisions of the Oracle of Omaha
Buffett’s rules are among those universal investment methodologies that work in any market, whether it’s up, down or flat. In fact, they work best in times of extreme volatility, just like the market we’re witnessing today.
Warren Buffett once said: Rule No. 1 in investing is “Don’t lose money” and Rule No. 2 is “Don’t forget rule No. 1.”
What the Oracle meant is that capital preservation takes precedence over capital growth, and if you’re capable of handling the downside, the upside will take care of itself.
2) George Soros
As chairman of Soros Fund Management LLC, the Hungarian-born Soros (net worth: $8.6 billion) is known as “The Man Who Broke the Bank of England” because of his short sale of US$10 billion worth of British pounds, reaping him a profit of $1 billion during the 1992 “Black Wednesday” currency crisis in the UK. He also made almost $1 billion shorting Japanese yen in 2012 and 2013.
In addition to being an investment genius, Soros also is a survivor of the Holocaust. His financial support of progressive causes around the world has earned him the enmity of many conservatives, but if you’re an investor, you shouldn’t care about any of that. You simply can’t argue with his astonishing track record.
Soros has executed contrarian plays of historic brilliance. Soros Fund Management is one of the most profitable firms in the hedge fund industry.
Soros once said: “The concept of a general equilibrium has no relevance to the real world…classical economics is an exercise in futility.” In other words, by the time all investors have adjusted to change, the rules of the game will change again.
Through some of his boldest currency bets, Soros has earned huge returns by anticipating, understanding and exploiting the knee-jerk, reflexive response of investors to cyclical events. His success epitomizes the enormous gains available if you’re armed with the right information and tools.
3) Peter Lynch
As manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch racked up an average annual return of 29.2%, consistently more than doubling the S&P 500 and making Magellan the best performing mutual fund in the world.
Lynch’s method is to catch the turning point in a company’s fortunes, to invest in a company just when a material change occurs that will eventually spawn a corresponding movement in its stock.
Lynch’s strategy is to conduct diligent research, to unearth changes in key variables that will boost share prices in the future.
Lynch memorably advised: “Never invest in anything you can’t illustrate with a crayon.”
Akin to the value-oriented Buffett, Lynch looks for intrinsic worth in a company. He advocates looking at stocks for their own value and eschews top-down macro analysis.
During Lynch’s legendary tenure as manager of Magellan Fund, assets under management grew from $18 million to $14 billion (that’s billion with a “b.”).
Lynch and Buffett both knew an unalterable truth about investing: No matter how high or how low a stock price goes, it will eventually return to its true value.
4) Benjamin Graham
As the “Father of Value Investing,” Benjamin Graham is known for being the mentor to Warren Buffett. He also wrote one of the most influential investing books of all time, The Intelligent Investor (1949), in which he fleshes out his investment philosophy.
As Graham wrote in The Intelligent Investor:
“Though business conditions may change, corporations and securities may change, and financial institutions and regulations may change, human nature remains the same. Thus the important and difficult part of a sound investment, which hinges upon the investor’s own temperament and attitude, is not much affected by the passing years.”
In these volatile times, the lesson is clear: resist the herd mentality and stay focused on true value.
When headlines become dark, as they are today, most investors behave like lemmings and march right off a cliff. They succumb to the “group think” of the media, friends, the Internet, colleagues, family — everyone telling them what stock or investment to buy or sell, everyone ready with brilliant advice. Graham’s simple advice: think for yourself.
5) Robert Rapier
The fifth investment mastermind is my colleague Robert Rapier, chief investment strategist of our premium trading service, Rapier’s Income Accelerator.
Maybe his name is familiar to you. A prolific writer, Robert’s articles have appeared in Forbes, The Wall Street Journal, The Washington Post and the Christian Science Monitor. He has been a featured expert on 60 Minutes and The History Channel. In addition to Rapier’s Income Accelerator, Robert helms our publication Utility Forecaster.
Robert has devised an investing method that allows him to extract multiple payments from the same stock over and over again, whether the broader market is going up, down or sideways.
Robert calls it his “Dividend Multiplier” and it has reaped robust and steady income for his followers. Rapier’s Income Accelerator is the only place where you’ll have access to his proprietary Dividend Multiplier and all the powerful trading opportunities it uncovers.
Robert’s system ferrets out low-risk stocks that don’t move up and down all day…the kind of “steady eddies” that won’t leave you always guessing where they’re going next.
These opportunities will allow you to safely generate robust income out of your dividend stocks, no matter what the market throws at us. Want to find out how Robert consistently beats the market? Click here for details.
John Persinos is the editorial director of Investing Daily.