Investment Articles

Investment management, two words that are in the mind of anyone that has invested in a company or organization. What exactly do these two words mean? Strictly by definition, investment management is the professional management of assets and securities in order to reach an investment goal that is beneficial to the investor. Assets and securities can translate to numerous things from stock shares to real estate. The investor can be anyone, from a large business firm to an individual.

Directly related to investment management come the terms asset management and fund management. Asset management is a term that is commonly used to refer to the management of collective investments. Fund management is the more generic term. Fund management can be used when speaking about any and all forms of institutional investments, and can be used as well when on the topic of management by private investors. The professional investment managers who specialize and deal in advisory often have their services referred to as portfolio management or wealth management. These specialists often time represent the wealthy private investors.

In order to break down what takes place during the management of these investments, one would need to understand each related process. Among these processes are financial statement analysis, asset and stock selection, plan implementation and ongoing monitoring of the investment. All of these things can be handled by investment management services and advisers. This industry is both a large and important global industry which by itself is responsible for funds ranging in the trillions. As this is a global industry with investors from around the world, the trillions in funds are from every possible currency. Many of the largest companies in the world also take part in the industry by employing investment managers and staff, all of which results in billions in additional revenue.

How can all of this effect businesses? Generally speaking, large corporations often times control large amounts of shareholdings. Usually these businesses are more or less fiduciary agents instead of merely principals or direct owners of shares. By owning a large majority of shares, investors can theoretically control or alter a company they have shares in. This is possible thanks to the voting rights that the shares carry. How all of this could effect the management of a company is because of the simple fact that a share owner can pressure or possibly out-vote other shareholders at meetings.

Regardless of whether it is a large corporation or individual making an investment, having the proper tools and knowledge to manage that investment is critical when thinking of success. Corporations and individuals alike rely on specialists to oversee and manage their investments. Merely trying to jump in to the industry by purchasing shares and investing in a business most likely isn’t a sound choice. Seeking the aid of a professional with knowledge of the industry beforehand can help an investor from losing money in their investment, and overtime help to achieve a profitable outcome. When it comes to investment management, it is most likely the safest choice to seek aid from an expert, rather than attempting to do it yourself.

If you are looking for more investment plan and guide. Please visit www.investmentpress.net you will find a lot of useful articles about investment there.

We have all been taught about the merits of diversification in investments. It is a variation of the old adage, “Don’t put all your eggs in one basket.”

Indeed, professional investment managers are trained to develop portfolios according to the tenets of Modern Portfolio Theory (MPT). MPT traces its roots to the work of Harry Markowitz and his seminal writings on “Portfolio Selection.” In his pioneering research, Markowitz was able to demonstrate the mathematical basis for diversification.

Essentially, Markowitz showed that selecting assets that have a positive expected return but exhibit low or (preferably) negative correlation to one another produces a combined portfolio that retains the positive expected return properties, but with lowered risk (as defined by variance).

Theoretically, this result arises due to the presence of at least two major sources of risk: nonsystematic (or unique) risk and systematic (or market) risk. While it is very difficult to eliminate market risk, it is possible to reduce the risks associated with unique investment assets. By combining investment assets that are subject to certain specific, unique risks with other investment assets that are subject to other unique risks, it may be possible to reduce the overall risk of the combined portfolio.

For the past several decades, this has been the mantra to which all investment managers adhered. Unfortunately, recent experiences in the capital markets have led both academics and professional investment practitioners to rethink portfolio construction. With the increasing interconnectedness of global markets and investment pools, we have seen that correlation structures among various investment assets are not always stable.

In fact, assets that typically exhibit low correlation with one another can dramatically change direction and begin exhibiting increased correlation during periods of market distress. The increased correlation leads to a reduction in the power of diversification and thus to increased risk in the overall portfolio. Unfortunately, this upward shift in correlation happens at exactly the time when an investor needs correlation the most: market distress.

As a result, investment managers need to be exceedingly careful in constructing portfolios that are able to withstand the dynamic nature of correlations, especially as the market experiences large disturbances. These “disturbances” are becoming much more commonplace: the Asian currency crisis of 1997, failure of the major hedge fund “Long Term Capital Management” in 1998, the burst of the “dot-com” bubble in 2000/2001, the terrorist attacks of 2001, the burst of the real estate bubble in 2007/2008, and the credit crisis of 2008/2009. In nearly every case, correlation structures among various assets increased at precisely the time when investors needed protection the most.

The best portfolio construction techniques have an appreciation for the fact that correlation structures may change during different “states of the world” or regimes. By incorporating these state-dependent correlation structures into portfolio design and optimization, investment managers can move to better protect portfolios during times of market distress.

Sharath M. Sury – Founder and Executive Director of the Sury Initiative for Financial Innovation & Risk Management (SIFIRM) at Santa Clara University, Sharath Sury devotes his time and energy to bringing together thought leaders who can address the development of real-world solutions to the current economic climate. Sharath Sury has worked with some of the brightest and most experienced experts in finance and risk management and aims to bring a greater sense of ethics and responsibility to his profession. Through his efforts, Professor Sury has established this invaluable forum for the research and discussion of new developments in the world of economics and finance and has attracted a renewed spirit of innovation to the industry. Sharath Sury also serves as an Adjunct Professor of Economics at the University of California and Adjunct Professor of Finance at DePaul University in Chicago. Sharath Sury’s interest and experience in wealth management began as an Associate and later Vice President at Goldman, Sachs & Co. He later founded and worked at S4 Capital, where he earned numerous accolades for his work.

http://blog.suryonline.net
http://everything-finance.net

As the dust settles from the Wall Street meltdown of 2008, the average investor needs to chart a course that threads its way through future growth and perils. Simply relying on the old investment adages may not be the wisest course. Here’s some things to think about.

(1) Wall Street is not your friend. At this point, it should come as no surprise that the goal on Wall Street is to make money for Wall Street, rather than giving investment advice that the average investor can actually benefit from. Washington makes a lot of noise about reform, but don’t hold your breath about anything happening. We have gone through two major Wall Street screw ups since 2000 that cost most individual investors a good chunk of their portfolios. First was the attempt to convince everyone that there was a “new math” on how to value companies that had some relationship to the internet and, after that didn’t exactly work out, Wall Street moved to use the environment of easy money to package high risk real estate mortgages that fell apart when real estate values started to decline. Even though most investors never owned internet stocks or CDO’s, the collapse of these products helped drive down the stock market in general. To thrive, Wall Street must continue to find and distribute economic “hot spot” products. A good bet in the future might be derivatives created from “cap and trade.” After all, trading air seems ready made for the street.

(2) Take a new look at “asset allocation.” Although asset allocation models do not ensure a profit or protect against a loss, they have become the standard of investment models for many investors. The theory itself is over 50 years old. The world has changed since Dwight Eisenhower was in the White House. Thanks to a developing global economy, asset class correlations are becoming more similar and this increases volatility in a portfolio. Don’t exit asset allocation like the last helicopter out of Saigon, but do avoid the rigid “pigeon holing” of asset classes that’s become prevalent in asset allocation design. Investment managers today need the flexibility to move a little if the asset class returns really moves against them. You can’t take your boat out without a life preserver on board. Your portfolio should be no different.

(3) Does passive indexing investing still work? Index investing was the “flavor of the month” back in the 1990’s when proponents of “efficient markets” promoted that it was so difficult to beat the market that everyone’s best bet was simply to mirror a market index and go to the beach. Today, the market is full of inefficiencies and with the S&P 500 flat lining over the last decade, it’s time to pour the sand out of your shoes and get back in the game.

(4) Portfolio “compression” is the next best idea. The average investor doesn’t need to squeeze all the upside out of a bull market as long as there’s some protection against the next bear. Cutting portfolio volatility should be on your new year’s resolution list. The future market road will continue to be rough and rocky roads generally demand good shock absorbers. If you are a competent investment mechanic, by all means install them yourself. If you need a qualified mechanic, seek one out. If you enjoy a really rough ride, just hang on with your current portfolio. You may get a few teeth knocked out, but that’s not what’s going to hurt the most.

Although the stock market is going through a tough patch, it’s still where a lot of the action is to outpace inflation and grow funds for the future. No promises, no guarantees, but that’s always been the story from the beginning. Going forward, caution will be your best friend. One old adage you will still be able to hold near and dear is that if it looks too good, it probably is.

Glenn (”Chip”) Dahlke, a senior contributor to the Living Trust Network, has 30 years in the investment business.

Copyright 2010. Living Trust Network, LLC. All Rights Reserved

The results are in! Roughly 260 people took the time to respond to the first income investing survey and I thank y’all very much for being so generous with your time. First, the generalizations:

As you will recall, the survey included eight “mostly true” or “mostly false” statements. Most people answered all of the questions without explanation or analysis (as requested), and most of the analysis explained exceptions to the “in general” nature of the questions being asked. All of your comments were well thought out, most were right on target and much appreciated.

Unanswered questions were judged half right and half wrong because there were too many of them to label totally wrong and wind up with meaningful statistics. Still, as a class, those who responded barely achieved a passing grade. A composite grade of just 72% correct is pretty scary.

Only 20 people assessed all eight statements correctly.

Here are the individual item results, based on my forty years of investment experience, including 35 managing OPM (other people’s money) professionally.

1. Tax deferred income is better than tax-free income. This turned out to be the easiest question of all, as 92.3% of you correctly labeled it “False”. One lesson to be learned early in your investment life is to grow a personal, tax-free, portfolio. “Uncle” has dibs on your retirement plans— all of them.

2. All individual investment portfolios eventually become retirement income portfolios. 38.5% of you failed to get the point— you can’t spend market value unless you sell the securities, and there is no guarantee that the market will cooperate with your retirement plans. Eventually, this one rings “True”, loud and clear.

3. An income investment portfolio should have a stable market value. In thirty-five years of investment management, I’ve determined that the single biggest error investors make is their focus on the market value of income securities. Stable income yes; stable market value – not! Roughly 25% of you incorrectly put this one in the “True” column.

4. Income investors should seek out mutual funds with the highest “total returns” to insure increasing levels of income. You did even worse on this one. 27% thought that higher total returns mean higher income— not at all. “Total Return” analysis is a mutual fund shell game. You can’t spend the growth— and you really should avoid open-end Mutual Funds as income providors.

5. Most often, market value changes will have no impact on the income generated from income-purpose securities. I was not surprised that so few respondents agreed with this mostly “True” observation. Clearly, too many investors (25%) are unclear on the nature of income securities.

6. 401(k) and IRA programs are excellent pension plans. Half of you, that’s 50% people, think of your defined contribution, self directed, savings plans as pensions. Shame on everyone: the government, financial advisors, tax and estate professionals, employee benefits professionals, RIAs— all of us.

7. Government bonds carry the lowest risk of loss, BUT they do fluctuate in market value. Nearly 25% of you missed the boat on this how-could-you-not-know-that “True” statement. My mouth stayed open for days.

8. Tax-exempt dividends in excess of 6% were paid without interruption throughout the financial crisis and remain available today. Also “True” at the time of the survey, and still true today— and only a handful of you emailed me for an explanation.

In summary, there were four generally “True” and four generally “False” statements, and I do appreciate that individual circumstances may make for some slight change in assessment. But if this were a “college entrance exam” for future retirees, retirement planners, or investment managers— well, barely passing just doesn’t cut it.

Many of you will disagree with my assessment. That’s fine, I expect to be beaten up a bit by people who are unfamiliar with my approach. But please be gentle, or at least civil.

Remember, your participation has earned you a free workshop, and thanks again for the input.

Steve Selengut
http://www.sancoservices.com
http://www.valuestockindex.com

Professional Portfolio Management since 1979
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”

Firms and managers who are registered with the CFTC must follow compliance rules by completing a self-examination checklist. Every year firms need to do a self-examination, and some firms are hoping to make this process easier for investment managers by creating more organized lists online. NFA checklists include rules to be followed by specific registration categories such as CTAs, CPOs, IBs, and FCMs, as well as general rules that need to be followed and tasks to be completed for all registered firms. Managers are finding it more difficult to stay organized and up-to-date with regulations, as well as informed of their own firm’s issues, and these checklists are designed to keep managers’ compliance issues limited.

Compliance is an important topic for investment managers to stay informed and organized with, but many compliance rules are extremely difficult for most managers to understand and follow. The CFTC has recently created new forex registration regulations, and CPOs, CTAs, and IBs are now required to stay in compliance after becoming registered. The NFA has provided a list of rules to be followed, that can be checked off as the firm goes through the process.

Many firms will find it easier to adjust the format and structure of these lists, in order to clarify their place in the NFA self-examination checklist and record any issues with an individual rule. Many managers need to be able to go back and forth between the checklist and other priorities without fear of losing their place in the self-examination or trying to remember what rule they need to check next.

There are also several appendices throughout the checklist that further explain a rule in greater detail, and these additional guidelines need to be kept in an accessible place for the firm or manager to refer to when needed. There are also mentions of several CFTC forms that need to be completed throughout the year, and managers will need to record the completion of these forms as well. Additionally, firms need to find a way to document that they have fulfilled the self-examination requirement each year for their own personal records.

With the release of the new forex regulations and the requirement for CPOs, CTAs, and IBs to become registered through forex registration, following compliance rules has become a greater issue. The yearly self-examination aims to offer both the firms and the NFA with ways to stay on track with new and changing rules.

Ariana Adams writes articles on forex registration. You can access more information by going to http://www.forexregistration.com

Regular readers will know that after extensive research and much experience, we favour passive investments. That is to say that our clients will accept the level of return that fits their appetite for risk over the long term. In addition, we can access institutional funds instead of retail funds and reduce costs which result in ‘performance drag’.

This way of investing is backed by investment guru Warren Buffett who said:

“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees”.

Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.’

In many cases we also find that the new client does NOT NEED to take as much risk as they are doing, and we can reduce the risk whilst still allowing them to achieve their goals in life.

However, there are still many investors who are not aware of this, or who feel that they can genuinely beat the market in the long term despite all the evidence to the contrary.

Many of these investors will use well known investment managers with household names. Well, an article in the press came to our attention recently which, putting aside the passive/active debate, we feel is quite shocking.

We will not name this company, but it decided to float on the London Stock Exchange. It was valued at £676 million, despite losing money last year, and having debts of around £300 million.

As a result of the flotation, the two key fund managers received £15 million & £9.5 million! The rest of the employees then got £14 million in Christmas cash, and also have something like £70 million in shares.

So, what about all the investors who have given their money to this firm in the hope that they will perform. What did they get?

Well, many of this company’s funds have languished at the very bottom of the performance tables.

It looks like the familiar story of growing their own wealth whilst totally ignoring what should be their real remit which is growing YOUR wealth!

Of course, this story of greed is not unique, but adds to our determination to operate as we do now by largely being able to ignore this type of company, and always putting you the client first.

In a similar vein, we met new clients recently who had getting on for a million pounds in various investments such as ISAs and Pensions. Their main remit was to get organised and develop a strategy to be able to work part time from their early 50s.

They had used a standard commission based adviser up until now, but found that he did not contact them very often unless they wanted to buy another investment. This is very common, but what shocked them was that they were not aware of the considerable amounts of commission the adviser was taking each year putting aside new investments.

This is called trail commission, and is typically 0.5% of the total investments held. The insurance companies and investment companies (like the one above) pay this automatically to the adviser. So what it boiled down to is that this adviser was being paid something like £5,000 pa from their investment pot for…nothing!

If he was giving a fantastic service with regular reviews etc then you could argue that is one thing, but as is only too common, this is not the case. We find that what particularly galls new clients is that they have no idea that they are paying this money out!

By the way, if you have bought products in the past directly from the investment company, you may find that this 0.5% that the adviser would normally receive is simply absorbed by the company.

The Financial Tips Bottom Line

When you work with an adviser, make sure that they are fee based and will carry out the work you want done not only now, but on an ongoing basis.

You then agree with your adviser what fees you will pay to get this service – this should be a written agreement. But if ALL THEY TALK ABOUT is investments, and it’s a fee not a commission, then get another opinion.

ACTION POINT

Make a list of all your investments and ask your adviser or company what costs you are paying annually. If you find, like many investors,that you are paying out hundreds or even thousands of pounds a year, what are you getting for this?

Ray Prince is a fee based Certified Financial Planner with Rutherford Wilkinson ltd, and helps UK Resident Doctors and Dentists plan to achieve their financial objectives. Just visit http://www.medicaldentalfs.com where you can request your free retirement planning guide.

Rutherford Wilkinson ltd is authorised and regulated by the Financial Services Authority.

Smart investing includes risk management; however, most people focus on how much money they can make without paying attention to strategically analyzing risk. It is important for an investor to fully understand the concept of risk before embarking on an investment plan and to implement certain safeguards to ensure their success rate is increased.

In investment terms, risk is associated with the end of period value of the investment and the primary concern for any investor is a reduction in value of the original sum invested. There is no way of completely eliminating financial risk, even with the placement of assets in a bank account, therefore, a strategic investment plan should incorporate risk reduction techniques that have proven to create a greater opportunity of coming out ahead.

The most frequent techniques for reducing risk in investment are diversification, dollar cost averaging and time, and in order to better understand these areas we will expand upon their meaning and how they can be implemented.

Diversification

Diversification in finance mixes a wide variety of investments within a portfolio and can include investing in different markets, regions or countries. Diversification is a frequent practice of investment managers to reduce risk without substantial reduction in returns.

Diversification reduces risk because markets do not always move in tandem and many financial instruments will react differently to market conditions. A balanced portfolio will be less volatile than one that is concentrated on a single asset and can include the following strategies:

1) Spread the portfolio among multiple investment vehicles.
2) Vary the risk in securities.
3) Vary by industry or geographical location.
4) Vary the investment managers and the strategies used by those managers.

Dollar Cost Averaging

It is an investor’s dream to be able to enter the market at its bottom but nobody can really tell when a market has ever reached this point. In reality, we will often see people get caught at the top of the market instead of buying low and selling high.

Dollar cost averaging is a timing strategy of investing equal dollar amounts regularly and periodically over specific time periods and is a technique that prevents investors from putting all their money in the market at the inappropriate time.

Time as a Risk Moderator

Time not only works for investors through the power of compounding but also helps to dampen the risk of investments. If we look at most major markets, we will see that the stock market will usually follow an upward trend with interim fluctuations. By focusing strategies on a long term basis, many of these fluctuations can be leveled in comparison to the overall performance as recoveries happen and markets will often surpass a previous high. It is worth noting that there is no specific formula for time as a risk moderator and indefinite waiting periods could be considered when implementing.

For any investor, the primary step in the formulation of a successful strategy should be the setting of an investment objective. Although “to make money” may be a fair representation of your goal, it does not focus on the strategic process that needs to take place in order to achieve what we have originally set out to do. The investment objective must be realistic and specific and should take into account the risk tolerance, personal needs and circumstance and any constraints that the investor may have.

It is recommended that every potential investor carries out a financial needs analysis. Many companies are available to help with this and provide the direction and equipment needed to carry out a proper analysis and most should carry this important service out free of charge. It is also vital that any company that assists a potential investor with their strategy should describe these risk reduction techniques in greater detail and explain the ways in which they can be incorporated into an investment plan.

For a free financial needs analysis and comparison of the market, contact Alliance Insurance Services on 2891 8915 or visit http://www.alliancegroup.com.hk

Alliance Insurance Services is an independent broker and provides services for Health Insurance, Life Insurance, Savings and Investments. For further information please visit http://www.alliancegroup.com.hk

Back in the day the standard practice was to invest your money into funds such as unit trusts by completing an application form and sending it to the investment manager together with a cheque in the post. You had no idea when the application would be received by the manager and therefore when your money would be invested. The only confirmation of this happening would be when you receive your contract notes in the post some time after.

It was also standard practice, and still is for many, for the investment manager to charge up to 6% initial commission. So for every £10,000 you would actually have £9,400 invested. If you invested through a broker or financial adviser they would typically receive 3%, or £300, out of that £10,000 investment before the money is even invested.

Nowadays the story can be quite different. I say can be because it is not necessarily so. Most investments you make will still follow the same process as above.

However it does not have to be that way. These days you have discount brokers such as Investor Profile that provide a fully automated system that allows you to invest online, safely and securely, quickly and easily. There is the minimal of effort involved in making your application.

You have what is called a fund supermarket to go shopping in. That means rather than only being able to choose from the fund range of a particular investment manager, on a system such as that provided by Investor Profile you can choose from funds provided by all sorts of different fund managers, all in one place, then continue to view your various holdings in one place. A fund supermarket such as this can hold as many as 1500 funds for you to choose from.

You would think that for this added ease of use and flexibility of choice that the broker/financial adviser is finally earning their money. But in fact the new breed of online investment providers actually discount the initial commission you pay.

Investor Profile does not believe you should pay such high initial commissions so promise to not take any initial commission at all. That’s 0% commission to Investor Profile every time you invest. That’s because we believe you should have more money invested at the beginning because this is proven to help you earn more in the future.

So when considering how, when or with whom to invest the benefits of investing online are compelling and indeed changing the industry. For years the investment managers have been creaming off money every time people invested in their funds. Now the good guys are coming to town and they’re here to help you do the right thing so that you can benefit for years to come.

Jaskarn Pawar, Director, Investor Profile Ltd

If you are a UK investor with ISA, Personal Pension or Unit Trust investments then Investor Profile’s free online investment monitoring service could be what you need.

Back in the day the standard practice was to invest your money into funds such as unit trusts by completing an application form and sending it to the investment manager together with a cheque in the post. You had no idea when the application would be received by the manager and therefore when your money would be invested. The only confirmation of this happening would be when you receive your contract notes in the post some time after.

It was also standard practice, and still is for many, for the investment manager to charge up to 6% initial commission. So for every £10,000 you would actually have £9,400 invested. If you invested through a broker or financial adviser they would typically receive 3%, or £300, out of that £10,000 investment before the money is even invested.

Nowadays the story can be quite different. I say can be because it is not necessarily so. Most investments you make will still follow the same process as above.

However it does not have to be that way. These days you have discount brokers such as Investor Profile that provide a fully automated system that allows you to invest online, safely and securely, quickly and easily. There is the minimal of effort involved in making your application.

You have what is called a fund supermarket to go shopping in. That means rather than only being able to choose from the fund range of a particular investment manager, on a system such as that provided by Investor Profile you can choose from funds provided by all sorts of different fund managers, all in one place, then continue to view your various holdings in one place. A fund supermarket such as this can hold as many as 1500 funds for you to choose from.

You would think that for this added ease of use and flexibility of choice that the broker/financial adviser is finally earning their money. But in fact the new breed of online investment providers actually discount the initial commission you pay.

Investor Profile does not believe you should pay such high initial commissions so promise to not take any initial commission at all. That’s 0% commission to Investor Profile every time you invest. That’s because we believe you should have more money invested at the beginning because this is proven to help you earn more in the future.

So when considering how, when or with whom to invest the benefits of investing online are compelling and indeed changing the industry. For years the investment managers have been creaming off money every time people invested in their funds. Now the good guys are coming to town and they’re here to help you do the right thing so that you can benefit for years to come.

Jaskarn Pawar, Director, Investor Profile Ltd

If you are a UK investor with ISA, Personal Pension or Unit Trust investments then Investor Profile’s free online investment monitoring service could be what you need.

Legions of investment gurus beckon us to follow, but is anyone really worth our time and money? The most popular investor in the world is Warren Buffett, but is he really our best example? Why do we seek to emulate Buffett, and not other spectacularly successful investment managers? Does he deserve his oracle status? While you may not agree with all the differing styles, let’s examine him alongside other legendary investors:

Warren Buffett

He has been turned into the icon of the American Dream. With his humble demeanor and aw-shucks attitude, he buys quality business for less than they’re worth, where the market dominance of the firm creates a “margin of safety” in the stock. His problem is that many of his investments are in declining industries, where he could have sold the businesses and reinvested in better firms (see Dairy Queen).

He learned investing from Ben Graham, who first wrote about this margin of safety. But over time, Warren evolved from buying decent companies for dirt cheap to buying great firms for a fair price. Fortunately for him, he is now the buyer of choice for closely-held businesses, which gives him the right of first refusal for deals inaccessible to most managers. Unfortunately, missteps like selling index puts near the market highs have slightly tarnished his sterling reputation.

Other than heading a large firm and his status the world’s richest man for a time, what makes him so endearing? The public swoons over his image as a humble, down-to-earth man making simple buys that the average investor believes they can imitate. His main strategy, on its face, is quite simple, but 20% returns over 50+ years is by no accounts easy.

David Swensen

Next to Buffett, Swensen has one of the best reputations today. He has managed the Yale endowment since 1985, garnering compounded returns of 14.5% even after a 25% drop in the last fiscal year. He advocates passive buy and hold allocations in a retail investor’s portfolio, going so far as to recommend his own lazy portfolio:

- 30% in Vanguard Total Stock Market Index (VTSMX) – 20% in Vanguard REIT Index (VGSIX) – 20% in Vanguard Total International Stock (VGTSX) or (15% inVDMIX and 5% in VEIEX) – 15% in Vanguard Inflation Protected Securities (VIPSX) – 15% in Vanguard Short Term Treasury Index (VFISX)

However, his success at Yale doesn’t lie in passive buy and hold. He is famous for moving beyond normal stock and bond allocations into alternative investments, including hedge funds, private equity, timber, commodities, etc. He may still buy and hold his investments, but he has access to the best alpha-producing managers in the world, and takes full advantage of their availability.

He argues that average investors should not try to pick investments, as they are hopelessly outclassed by institutions with the best analytics, talent and strategies.

George Soros

In short, his strategy is to ride massive global trends, and then capitalize on his belief in Reflexivity. Reflexivity is the concept that faulty belief systems create unsustainable trends. When the belief pervades the great majority of market participants, a low risk trade can be made in the opposite direction of the trend.

He is interesting in that his great desire is to be remembered not as an investor, but as a philosopher and philanthropist, donating funds to encourage democracy in eastern Europe, and proclaiming his theory of Reflexivity.

He is most famous for “breaking” the Bank of England, betting against the pound because of a faulty policy. His other most notable accomplishment is founding (with Jim Rogers) and managing the Quantum fund to average returns of 30% from 1970-2000. His strategies are much harder to imitate than Buffett’s, as he bets on currencies, stocks and bonds all over the world, requiring a diverse economic acumen far beyond any normal investment manager.

William O’Neill

He is the founder of Investor’s Business Daily, and one of the first to marry fundamental and technical analysis into the same stockpicking strategy. He advocates buying newer stocks with high earnings growth and low debt, but only if they have leading price action during a bull market. His most valuable lesson is the maxim of cutting your losses at no more than 7-8%. He writes detailed selling rules for all possible scenarios because he learned firsthand that it’s not the winnings that make a great investor, but knowing how to take a loss.

In order to be successful with his strategy, one must keep a watch list of suitable stocks, waiting for a stock to reach a buy point. This point is supposed to be the least risky price at which to buy. O’Neill’s strategy is popular because it presents the possibility for large returns while limiting losses.

Richard Dennis

It is very understandable if you have not heard his name before. Dennis traded his account from a few hundred dollars to $200mm. He is famous for creating the “Turtle Traders,” a group of trend-following traders that he taught from scratch to become successful investment managers. He would trade any asset classes, but created rigid technical buy and sell rules that he followed religiously, trading breakouts in the direction of the current market trend. While his technical strategy was fairly simple, it required discipline that was very difficult for most people. He himself suffered large losses when he diverged from his strategy.

Are you willing to backtest strategies and follow the proven ones even when they underperform the market, in exchange for fantastic returns in the long run? Learn from Richard Dennis.

Conclusion

Regardless of style, you can learn from each of the above investors. Each is a master of their own style, a style that fits their personality and strengths completely. Buffett could never follow Richard Dennis, and Swensen could not be a George Soros. If you find an investment style you are comfortable with, stick with it at all costs.

A word of caution, though. How much of your life are you willing to devote to investments? If you are not willing to live and breath the markets, don’t even think about global macro. If your emotions get the best of you, stay away from Richard Dennis. The easiest to follow would be Swensen, who as a master asset allocator does not trade individual assets, but instead works to diversify and find the best managers.

Do you think it is possible to emulate the masters, or is it purely luck that has made them successful? Are there any other managers that you believe are better than those above? Can any average person become a great investor?

Don Swanson is the pen name for the author of RetirementSavior.com, a blog about investing tools and personal finance tips to prepare for retirement. Don thinks the convention investment thinking is outdated, and shows on his blog ways to outperform the market with less risk. Visit his site today at http://www.retirementsavior.com