Andrew Kuhn April 19, 2020

Which Kind of Investor Could You Aspire to Be: Graham, Fisher, Lynch, Greenblatt, or Marks?

Hi Geoff, 


I am very new to investing and I have most of my savings invested in Vanguard S&P 500. I would love to learn more about the world of investing but I just don’t know where to start. Could you please give me a roadmap to begin?


Geoff’s Advice to a Brand New Investor


You Need to KNOW YOURSELF First, So…


It really depends on what approach would work best for you. You should read about the investor who most speaks to the kind of investor you COULD be. In other words, what are your interests, what is your personality, etc.


I would recommend picking from one of five possible investors:


1) Ben Graham

2) Phil Fisher

3) Peter Lynch

4) Joel Greenblatt

5) Howard Marks


You might want to read one book by each of them. The Ben Graham approach is based on asset values and liquidation value. It is the approach of net-nets, stocks trading below book value, stocks trading at less than 10 times P/E and little debt, etc. You could read the Intelligent Investor (I recommend the 1970s edition – or earlier – but not the edition revised by Jason Zweig. So, find an edition with just Graham’s name on it – not Zweig’s name). I would also recommend reading “There’s Always Something to Do”. This book is about Peter Cundill. It is an easier read than the Intelligent Investor. But, it shows you what the actual work of applying a “Graham and Dodd” approach is. So, to get a taste of the Ben Graham approach I’d recommend reading: First – “There’s Always Something to Do”. If you feel like Cundill’s investing style is one you could copy yourself – then, read “The Intelligent Investor”. If you get something out of “The Intelligent Investor” you can then read the various editions of Security Analysis (1934, 1940, and 1951). Also read: “The Interpretation of Financial Statements”. There are a few other books by Graham that are good (a couple books of his articles and an autobiography called “memoirs”). You can find all of these at Amazon and elsewhere. Buy them used and collect the books for your own review. Keep them forever. Heavily annotate them. Copy the approaches you read about using modern stocks. However: ONLY do this if you read “There’s Always Something to Do” and the Cundill approach resonates with you as something you could do personally. If you read that book – it’s a very breezy read – and don’t feel that approach resonate with you, then skip Graham entirely.


Phil Fisher. Read “Common Stocks and Uncommon Profits”. Fisher wrote a few other books too. But, read that one. Especially think about his talk of “scuttlebutt”. Is this something you can do? Is this something you want to do? If so: read Fisher’s other books. Focus on the scuttlebutt approach. During coronavirus, it will be difficult to make company visits. But, you can often speak with people by email and phone. What industry do you work in? What country do you live in? What city do you live in? What are your hobbies? What industries do others you know work in? Where did you go to school? What did you study? Look for ways that you can turn any of those things into your circle of competence. If you live in a particular city, state, etc. with some public companies in it – list every one of them. Look through the list for companies you can learn about, visit, etc. Don’t worry about their prices or about investing in them. Just decide which companies you COULD get firsthand info on – not which companies such information would be valuable about. If you have studied hospitality, life sciences, computer science, agriculture, etc. then make a special effort to list all companies in those fields you could talk to, visit, etc. If you work in a certain industry where some companies are public – make a list of all the public companies in that field. Don’t think about specific stocks. Just think about what social networks, etc. you could tap into to learn about how these industries, businesses, organizations, their decision makers, etc. actually work. Think of your job more as being a networker first and a reporter second – you are a business analyst third under this approach. A stock analyst – really not at all. This is more of the venture capital type approach – just at a later stage. Only do these things if Fisher’s book sounds like the kind of investing life you want to lead. Do you want to be behind a desk reading balance sheets like Ben Graham or out and about talking with anyone and everyone – like Phil Fisher. Depends on your personality.


Peter Lynch. This is basically the “road trip” approach. This means you constantly need to be hunting down leads and learning about companies. You don’t need to know them in tremendous depth. But, you do need to “turn over more rocks” than anyone else. This approach is best for someone who can literally drop everything and take a road trip visiting certain areas, companies, etc. for a couple days to a week every month. Depending on what your day job is – this is actually possible for some people. Actually, these days it’s more possible for more people than you’d think. But, if you have to be at a desk in an office from 9-5 from Monday to Friday – this approach won’t work. The Peter Lynch approach – which you should get a taste of by reading “One Up on Wall Street” and “Beating the Street” is all about identifying the “turn” in a given business. Not the stock necessarily. That doesn’t mater as much. Nor does the issue of whether the industry or business is a great one for the long-term. What matters is: “are things getting better or worse”? Here, you have to be someone who spends a very large amount of time thinking about all sorts of businesses in all sorts of industries without really ever thinking about markets or stocks. You just think about all these little industries, businesses, etc. You visit every one you can. You are focused entirely on just whether there is a story here that isn’t baked into the stock price. So, you want to find a great little restaurant chain that’s successful in Texas but hasn’t gone national yet or a little one branch bank or a specialty insurer that hasn’t branched out beyond a couple states. Things like that. The smaller the company, the better. For bigger companies, you will more likely be looking at “turns” in the sense of actual “turnarounds”. There are all these restaurants, hotels, airlines, etc. that are in a lot of trouble now. But, they’ll be opening up soon. If you are a Lynch type investor – you’ll love going to see all of those companies, visiting the sites where they operate, talking to customers, employees, etc. getting a REAL feel – not just the speculation of Wall Street – on whether people’s behavior has changed forever or they are getting comfortable again. What’s changed? What hasn’t? Like I said – this is the road trip approach. You’d want to be the kind of person who – if you’re analyzing Starbucks – spends a week on the road eating every breakfast, lunch, and dinner at a different Starbucks and asking what’s changed since coronavirus in what way and so on. You have to believe that you have better information on the stocks you really dig into than Wall Street does. You have to make the effort they won’t. They assume all the information is baked into the stock price. They rely on secondary sources. You become the primary source and get the info yourself. If you like Lynch’s books – “One Up on Wall Street” and “Beating the Street” – then you should consider this investment approach.


Read Joel Greenblatt’s “You Can Be a Stock Market Genius”. Ignore his other books. He talks all about special situations. Spin-offs and things like that. You could be an investor who JUST focuses on spin-offs. There are certainly enough of those now. Read the book. Decide if that approach appeals to you. This stuff can all be done from home. Read every past blog post ever on the blog “Clark Street Value” – copy and paste everything to a file you keep for your own purposes at home. Study it closely. Do a post mortem on what special situations worked out and what special situations didn’t. Find other blogs that focus on special situations. Start talking to anyone you can find online – their emails are often out there, and if not: they’re on Twitter – who deals in special situations. It’s perfectly possible to survive on an investment diet of nothing but special situations.


Howard Marks. This is another approach that doesn’t require you to go out on the road. Read his two books: “The Most Important Thing” and “Mastering the Market Cycle”. Then, you can read all the memos over at Oaktree:


Archived memos are on the left hand side of the screen.


This approach is somewhat “contrarian” I guess you could call it. Though really it’s about “thinking in bets” (which is actually the title of a book he likes). Basically, you are not picking which horse is the fastest nor which horse offers the biggest payout. Instead, you are trying to figure out which horse – or even HORSES – are mispriced due to excessive pessimism. This doesn’t mean they aren’t slower than the pack. They may be. But, it means that they are perceived to be even slower than they really are. There’s usually a significant timing issue here. So, you may start looking at oil producers and companies like that now, because there may be bargains there due to how high pessimism is. With this approach, it is rarely necessary to pick the exact right stock. If one cruise line is too cheap – they may all be too cheap. While Oaktree’s actual approach is heavily distressed debt focused – that doesn’t have to be how you apply a Howard Marks type approach. Extremely beaten down equity can have similar amounts of excessive pessimism. Since you will have already read “You Can Be a Stock Market Genius” – you’ll have already heard of LEAPS. These are long-term options that can be useful when making the kinds of bets that a Howard Marks type investor might be interested in. There are times when the pessimism in a stock gets so great that the amount of money you could make from LEAPS becomes big even if the business doesn’t actually perform that well over the next couple years. It just has to survive, muddle through, etc. There are also some warrants out for some stocks that work much the same way.


Warrants bring me to the last kind of an investor. I won’t list this among the 5 types I think are realistic for people to follow – but, I do recommend a couple books (one book really, but I recommend getting background for the second book by reading the first) for people who have had more interest in math than finance up to this point. If you’ve had an interest in math in your life up to now, but know little about stock investing – I’d recommend reading first “Fortune’s Formula” and then secondly (the book I really do recommend): “A Man for All Markets”. That second book is about Ed Thorp. I don’t think most of the stuff discussed in either Fortune’s Formula or A Man For All Markets is of practical use to investors. There are some ideas in there that – if properly and practically applied to your own special areas of expertise – are valuable. However, I think most investors who read those two books are going to come away thinking they know more than they do and being more at risk of doing stuff they shouldn’t. I think the ideas in those two books are dangerous for most investors. But, I also think that certain methods of thinking and some principles there – if you can whittle them down to something of actual practical use to you – are powerful. The second of those two books “A Man For All Markets” is one of my favorite books of all time. And it’s the one I always recommend to people I know who love math but aren’t sure if they love investing – but, are curious enough about investing to reach out to me. So, for people who – in their earlier years – had more exposure to math than investing, read those two books.


Once you’ve read all the books – you can decide which kind of investor you are. From that point on, feel free to specialize. Since you are running just your own money – it won’t be too big a sum to need to branch out beyond any of these individual approaches. So, pick one of the five. And then forget the other 4 exist. You don’t need to be a generalist. And you don’t need to be an original thinker. You just need to copy one of these 5 guys more diligently and slavishly than anyone else would ever dream to. The key is to work very, very hard. Look at things no one else would ever do. Put in more hours. Visit more companies. Dissect more balance sheets. Let this one approach you’ve chosen as right for you consume more and more of your waking hours. If you became a fanatical practitioner of one of these 5 approaches – you’ll do just fine. Just work harder than everyone else. And plug your ears to the siren’s song of other investing approaches. Don’t dabble. And don’t be as lazy as you can afford to be. Your competition will generalize more and think less than they should. So, put in more hours focusing on one narrow approach and you will do just fine. Your biggest enemy will be boredom. I’ve seen a lot more money lost by boredom than greed. If you have some way of inoculating yourself against boredom so you can spend endless hours obsessing about the tiniest corners of the investment world – you will do a lot better than you could ever imagine. But, the odds are against that. The odds are you’ll get bored and lose focus and spend a lot of time thinking about situations where you’re never going to have any edge on anyone.


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