Distilled wisdom from investment legends

Richer, wiser, happier: How the world’s greatest investors win in markets and life

Author:  William Green

Publisher: Profile Books/Simon & Schuster

Pages: 296

Price: Rs 468

Many readers would be familiar with this couplet from Sufi saint Kabir: “Kabira sangat sadhu ki, jyon gandhi ki baas, Jo kuch gandhi de nahi, to bhi baas subaas.”  The saint urges us to live in the company of wise men. Even if they give us nothing, just being in their company will uplift us.

This is the idea that has driven William Green to write this book. A graduate in English Literature from Oxford, he began his journalistic career profiling fraudsters and murderers. But in 1995 he got some surplus cash. Eager to multiply his modest corpus, he began to read about investing. He realised he had one hard-to-match advantage as a journalist — his profession allowed him to speak and learn from the greatest investors of our times.  

Thus began a voyage that led him to interview numerous legends. He had one overarching goal—to learn from them the principles, processes, and traits that allowed them to beat the markets over the long term.

Some of the legendary money managers featured in the book are Mohnish Pabrai, Howard Marks, John Templeton, Joel Greenblatt, Nick Sleep, Charlie Munger, and a few others.    

The first investor the reader meets is Mohnish Pabrai. Those who have read Mr Pabrai’s 2007 book, The Dhandho Investor, would be familiar with his story. A Mumbai lad, he studied engineering in the US. While working for another company, he set up TransTech in 1990 with $70,000 in credit card debt and $30,000 from his retirement account. He sold it in 2000 for a cool $6 million. He then turned to money management, founding Pabrai Funds in 1999.

The essence of Mr Pabrai’s investment approach is “cloning”. He admits freely that nothing he has done in life is original. Instead, he identified the most skillful players in the game—Warren Buffett and Charlie Munger—analysed their approach, and applied it meticulously. Between 2000 and 2018, his fund earned 1,204 per cent, handily beating the S&P 500 Index’s 159 per cent. He gets many of his investment ideas from the 13F filings of other renowned investors.

Besides a stellar investment record, what Mr Pabrai has achieved through Dakshana, his charitable foundation that helps poor but talented students in India prepare for engineering and medical entrance exams, is commendable.  

Another legend featured here is Howard Marks, founder of Oaktree Capital, which manages $120 billion. Mr Marks also writes highly-regarded investment memos. Warren Buffett says when he sees a memo from Mr Marks, he postpones all other tasks to read it.

(Book cover) Richer, wiser, happier: How the world’s greatest investors win in markets and life

Mr Marks earned his reputation by investing in distressed assets and junk bonds. He believes it is more rewarding to hunt for bargains in market segments that other investors are too scared to touch.  

A key element of his approach is his belief in cyclicality. Most investors, in contrast, fall prey to recency bias. In bull markets, they pour more money into stocks whose prices have already skyrocketed, believing their stellar run will continue. But as Mr Marks says, even the tallest tree does not grow to the skies. Everything reverts to the mean after a while.

Mr Marks has devoted himself to studying cyclical patterns that repeat at intervals. Instead of trying to predict the future, he focuses his analytical skills on identifying where in the cycle the market is positioned. He then acts counter-cyclically: If a bull run is on, he turns defensive, and vice versa. 

Another legend profiled in the book is Charlie Munger, vice chairman of Berkshire Hathaway, and according to some, the intellectually superior half of the Buffett-Munger duo. Mr Munger believes if you set out to be smart, that is difficult, but it is relatively easier not to be stupid. Even avoiding stupidities can take you far in investing and in life.

Mr Munger follows the mantra: “Invert, always invert.” It means that if you are hunting for good qualities, first begin by looking for the bad ones. In stock picking, for instance, you could begin by looking for characteristics that regularly cause stocks to sink — high debt, inept or dishonest management, a business that is prone to obsolescence, and so on — and discard them. Such a process of elimination narrows the field of choices and makes decision-making easier while protecting investors from committing egregious mistakes. 

The author’s quest for over two decades to learn from the greatest minds has led to a book which, in this reviewer’s opinion, is certain to become a classic in due course. The advantage of a literature student writing on investing is that there are no intimidating numbers, formulae or financial minutiae that trip up many readers. And yet so much wisdom is packed into these pages that if a diligent reader were to prepare a checklist based on his reading and use it to filter his investments decisions, he would be certain to boost his performance.