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4 Crucial Tips From 4 of the World’s Best Investors

I’ve always had a simple philosophy. If I’m going to spend the time learning something, I’m going to try to find the best teachers.

The best teachers in finance aren’t university professors. They’re not even writers like me. The people we should really be listening to are the ones that go out every day and put billions of their own dollars at risk. Sure, they might lose sometimes — remember, even the best baseball players still get out two-thirds of the time — but you can’t argue with their long-term track records.

Here are four of the greatest tips from the world’s best investors. You can’t afford to miss this.

Warren Buffett

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

There are hundreds of terrific Warren Buffett quotes out there. The greatest investor of all time is also one of the best teachers of all time.

Buffett’s opinion on wonderful versus mediocre companies is probably the biggest key to his success. His former strategy, buying the cheapest value stocks available, simply didn’t scale up as he got more money. Buying terrific companies at a discount to their intrinsic value was the solution.

The buy-and-hold-great-companies strategy also has another, more hidden benefit. It allows investors to defer taxes for a long time. Staying patient with a great company over 30 years (while collecting ever-increasing dividends) is a great way to end up with more money.

Charlie Munger

“[Students] are taught the whole secret is diversification. But the rule is exactly the opposite.”

Warren Buffett’s right-hand man Charlie Munger might be smarter than the Oracle of Omaha. After all, it was Munger who convinced Buffett to stop searching for ultra-cheap value stocks and embrace something bigger.

Munger is known for making concentrated bets on just a few securities. When he ran a limited partnership in the 1960s, Munger invested all of his investors’ money (and all the money he could borrow) in one merger arbitrage situation. It worked out and he made a handsome profit.

Nobody is saying you should stick all of your money in one stock. Look at it this way instead. Say you were bullish on Telus Corporation (TSX:T)(NYSE:TU) because you like the company’s steady earnings power and the moat created by its impressive wireless network. Rather than buying your 10th-best idea, simply buy more Telus.

Peter Lynch

“I’m always fully invested. It’s a great feeling to be caught with your pants up.”

As markets continue to reach record highs, many investors are getting out of their favourite stocks. They’re convinced they can buy in later at a much cheaper price.

These folks are missing two important truths. The first is opportunity costs. If something goes up 30% and then falls 15%, that return beats safer alternatives. Secondly, it’s really hard for people to predict market tops. Smart investors don’t even try.

Besides, there are still cheap stocks in today’s market. First National Financial Corp. (TSX:FN) trades at just 8.2 times trailing earnings, despite having a rock-solid mortgage portfolio, attractive revenue growth, and an enviable position as the lender of choice for thousands of Canadian mortgage brokers. Oh, and shares pay a succulent 6.9% yield.

Jim Rogers

“Most successful investors, in fact, do nothing most of the time.”

One of the hardest things for many investors to fathom is that laziness is usually the best course of action.

The financial media disagrees, of course. Whenever something of note happens, pundits everywhere are all over it. Often, the commentator with the most outlandish opinion gets the headlines.

Meanwhile, a year later most companies have shrugged off the concern and the story is nothing but a hazy memory. The stock in question is usually up too.

The bottom line

Ultimately, investing is a complex subject. Nobody is suggesting you can just follow a handful of rules and be great at it.

But at the same time, every experienced investor can boil down their success to a small number of incredibly important things. Master them, and you will be well on your way to becoming a successful investor.

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Fool contributor Nelson Smith has no position in any stocks mentioned.

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