StockBox Book Rec: The Winning Investment Habits of Warren Buffett and George Soros
By Mark Tier
Click Here To Check it out on Amazon
Recommended for investors of all experience levels
Review by Chandler Lutz
The Short Story:
The Winning Investment Habits of Warren Buffet and George Soros is a must read for all investors. Even though these investors are polar opposites in style, Buffet and Soros are often regarded as the greatest investors of all time. When you look at total net worth, Buffet is at the top amongst all investors and Soros is third (He would be second but he retired from the investing world so he could focus on his charitable organization). It makes sense to study the ways of these investors and try and learn from their ways.
In Depth Analysis:
Throughout the investment community there has always been a rivalry between traders and value and growth investors. Very rarely will an investor of a particular style acknowledge the success of a counterpart hailing from a different school of thought. For this reason among many others, investment books have traditionally only focused on a particular investor’s methods. In his book, however, Mark Tier takes a completely different approach. Tier does not look at the particular method of a certain kind of investor, but rather the underlying habits that the most successful investors adhere to. For example, Tier does not tell you that you should buy stocks with a certain p/e ratio or market cap. His investment advice revolves around habits that help you implement the specific kind of system that best suits your personality.
His analysis of Soros and Buffett consists of the determining the underlying themes of their investment approach. Through this study Tier develops 23 habits that Buffett and Soros both follow as do other great investors. Although Tier has not had any first hand experience with either “master investor,” he has used their writings and some second hand accounts as the foundation of his work.
Tier argues that even though Buffett and Soros have antithetical investment philosophies, their habits are just the same. To best illustrate this point, let me give you the first winning investment habit of George Soros and Warren Buffett: preservation of capital is always priority number one. Tier contends that preservation of capital is the key building block to every successful investment methodology. I know what you’re thinking, everyone has heard that famous quote from Buffett: “Rule number 1: Never lose money. Rule Number 2: don’t forget rule number 1.” So Tier hasn’t really come up with anything that revolutionary, right? Not so fast. This is where Tier comes in and provides some pretty insightful analysis. Not only does he provide give a brief history of Soros and Buffett which explains how they arrived at this habit, but Tier explains how the master investors actually make this habit a part of their strategy. First of all, Tier argues that Buffett and Soros don’t really look at 1000 dollars lost as just losing out of that finite amount of money, but rather what that could have become. Since these investors look to compound money over there lifetime, 1000 dollars lost can turn into an extremely large blunder. For example, 1000 dollars compounded annually over 50 years at a five percent interest rate would bring you 11,467.40 dollars. By losing 1000 dollars, an investor missed out on making a ten bagger. If you increase the interest rate to 10 percent, about what you would expect out of the S&P 500, the total loss would balloon to a staggering 117,390.85 dollars. Once investors begin looking at the investment process from this viewpoint, preservation of capital becomes an increasingly important concept.
Additionally, Tier asserts that the great investors look for what he calls “high probability events.” Through such events, investors have a significant chance of making a large return on their money while the potential loss from undertaking such an investment is quite small. For example, if we were considering investing 1000 dollars in a high probability event, our potential return may be 1000 dollars while the maximum loss may be just 200 dollars. Also, the probability or chance of the favorable result must be much greater than that of the loss.
Preservation of capital is just one of the many investment habits that Tier discusses in the first part of the book. When I read this book, I thought the first section was tremendous until I read the second part, which was even better. In the second half entitled “Making the Habits Your Own” Tier provides exercises and advice on how to improve your investment habits and make them more like that of Soros and Buffett. In this section the reader can tear apart his current investment framework and discover where he is succeeding and what he can do to improve in the areas he is not.
To conclude, Tier provides a superior analysis that is useful to all types of investors with various experience levels. Although this is not my favorite investment book (One Up On Wall Street still holds that title), this book is a close second that belongs in the library of every investor. Click here to check it out on Amazon.