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The Hidden Stories About How 7 of the Greatest Investors Ever Made Their Fortunes…

What you probably didn’t know

Jim Tisch, the CEO of holding company Loews Corp. (L) has beaten Warren Buffet at his own game since 2000. As Buffett’s Berkshire Hathaway (BRK) has grown by over 100%, Loews has grown by nearly 400%.

What’s his secret

“The 5-million Dollar Test” In the 1980’s when energy was way down, you could buy a $50mm oil tanker for $5mm. The ships were actually trading for less than their scrap value. Jim immediately bought all of the ships he could. Less than a decade later, he cashed out for nearly 10x his original purchase. Jim continues to do this, year after year.

What he’s probably looking at now

• Emerson (MSN)

• Manning and Napier (MN)

• Cninsure Inc. (CISG)

 

What you probably didn’t know

When Buffett was 11 years old; he purchased three shares of Cities Service Preferred with his sister. Over the following months, the stock dropped from $38.25 to $27. When the stock finally recovered to $40, Warren cashed out, netting a $5 profit. After selling though, the stock continued to rise until it hit over $200 per share. If had held on to the stock a little longer, he would have profited over $500.

What’s his secret

Warren Buffett looks for companies that:

• Have high Predictability Rank, that is, companies that can consistently grow its revenue and earnings.

• Have competitive advantages. It can maintain or even expand its profit margin while growing its business.

• Incur little debt while growing the business.

• Are fair valued or under-valued.

What he’s probably looking at now

•Amtrust Financial Services (AMFI)

• Autozone (AZO)

• Fastenal (FAST)

• Tractor Supply Co. (TSCO)

• US Bancorp (USB)

• Axalta Coating Systems Ltd. (AXTA)

 

What you probably didn’t know

In 1977, Lynch was named head of the then obscure Magellen Fund, which had around $20 million in assets. By the time Lynch resigned as a fund manager in 1990, the fund had grown to more than $14 billion in assets with more than 1,000 individual stock positions. From 1977 until 1990, the Magellan fund averaged a 29.2% return, the best 20-year return of any mutual fund ever.

What’s his secret

Peter looks for what he calls, growth at a reasonable price (or GARP). It is a style that looks for both growth and value all at the same time. His method looks to find stocks with growth rates that are better than the market but with valuations that are below the market. He does this by dividing a stocks Price/Earnings ratio by its historic growth rate.

What he’s probably looking at now

• Gilead Sciences (GILD)

• Fossil Group (FOSL)

• Alliance Holdings (AHGP)

 

What you probably didn’t know

In the early 1970’s, Jim Rogers co-founded the Quantum fund with George Soros. Over the next ten years, the Quantum Fund returned 4,200%. Jim also snuck onto the stage at Woodstock, but that is a story for another time.

What’s his secret

Jim has said that he is terrible at timing the markets. Instead, he uses a top-down economic model to spot long term trends. He looks for one of four different types of change that affect a country or industry:

(1) Industries in trouble

(2)New-Consumer Trends

(3)Government Intervention

(4)Over-bought Stocks

What he’s probably looking at now

• Phosagro (PHOR) MCX

• Soybeans

• CVR Partners LP (UAN)

 

What you probably didn’t know

In 1985, Greenblatt started the private investment partnership, Gotham Capital. Ten years later, Greenblatt returned all of the capital to the partners, but not before netting an annualized return of 50%. If you had invested $1,000 in Gotham Capital in 1985, it would have been worth $51,970 just 10 years later.

What’s his secret

• Establish a minimum market capitalization (usually greater than $50 million).

• Exclude utility and financial stocks.

• Determine company’s earnings yield = EBIT / enterprise value.

• Determine company’s return on capital = EBIT / (net fixed assets + working capital).

• Rank all companies above chosen market capitalization by highest earnings yield and highest return on capital (ranked as percentages).

• Invest in 20–30 highest ranked companies.

• Re-balance portfolio once per year, selling losers one week before the year-mark and winners one week after the year mark.

What he’s probably looking at now

• Boston Beer Co. (SAM)

• Ross Stores (ROST)

• Madison Square Garden Co. (MSG)

 

What you probably didn’t know

When I interviewed Peter last year, he told me that when Yahoo offered to buy Facebook for $1bb (which would have net him close to $100mm), he tried to convince Mark Zuckerberg to take the deal. Mark said no and it’s a good thing he didn’t. Peter ended up cashing in his shares of Facebook in 2012 for a little over $1bb, making him an extra $900mm and one of the most successful investors ever.

What’s his secret

After the situation with Facebook, Peter said “If you focus on near-term growth above all else, you miss the most important question you should be asking: will this business still be around a decade from now? Numbers alone won’t tell you the answer; instead, you must think critically about the qualitative characteristics of your business.”

What he’s probably looking at now

• Kahuna

• Final

• Pakible

 

What you probably didn’t know

In December of 2008 I published a book called “The Forever Portfolio” and it was about the stocks I felt that people should buy and hold forever. So what happened? The guys at Choose Yourself Media did an analysis on the stocks that I chose. Since I published, the stocks have gone up 191% and the stocks in the Dow Jones Market Average have gone up 80%. So in the past 5 years I have outperformed the market (and Warren Buffett) by 22%.

What’s his secret

When I am investing, I do one of two things:

1. Filter the top 1% of investments from my superconnectors (contacts at hedge funds, angel investors, CEO’s of companies.

2. Invest in what I like to call “remora companies.” These are smaller companies whose services are used by larger ones and will eventually be acquired.

What he’s probably looking at now

• TROV – Following a demographic trend

• YHOO – How To Get A Search Engine For Free

Ok, so these are seven of the most successful investors ever. But now you may be asking yourself: “Who do I follow and which strategy should I use?” Over the last 20 years, I have developed a technique to discover only the top 1% of investments out of the hundreds these successful investors make every year. I will show you exactly how in the next article that I contribute on RichTopia. Keep an eye out for it.

About the author

JAMES ALTUCHER

JAMES ALTUCHER

James is the Co-founder of 20 companies, including some that have sold for large exits. Previously he was a hedge fund manager.

He is currently on the board of a public company with a billion dollars in revenue and advises several others.

James' writing has been featured in The Financial Times, Forbes, The Wall Street Journal, TechCrunch, The Huffington Post, and RichTopia.

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