Learning from the best

Investment Gurus focuses on one type of investing — common stocks, something that most of us understand and invest in as they often turn out to be the best investment over time. “I don’t want to dazzle you with exotic investment techniques that you will have no use for in your own investing life.” These are the opening lines of the book and this sentiment continues along the course of the book.

Despite this being an old book, every line is relevant today and that speaks about the book’s importance to its readers. It is not a traditional book composed of the experiences of the author himself but a compilation of interviews done by the author with several investment gurus. These include fundamental analysts, quant believers, passive investors, Nobel Prize winners and other thinkers, including William Sharpe, Peter Lynch, Eugene Fama and Merton Miller. 

The beauty of this book is that it can be as easily read and understood by a layman as a practicing fund manager. The way the author has presented his observations makes them easy to understand. A number-oriented statistics lover may not find this book interesting. The book tries to give answers to frequently asked questions such as can the market be beaten consistently, can an ordinary investor do it and how do investment gurus do it consistently. It also tries to answer ancillary questions such as what should be an ideal investment horizon, risk reward balance, volatility mitigation and the like. 

While it is difficult to derive a few simple takeaways from this book, one can, however, draw the following conclusions —

• There is a place for all kinds of investing strategies in the market — active/passive, fundamental/ quantitative, long term/trading.
• Investing cannot be taken on as a hobby. One has to devote sufficient time and resources to it.
• One must invest with due diligence. Any investment made on hearsay/tips is bound to fail.

The book does not give much insight into quantitative and algorithm-based investment approaches as these gurus have not freely talked about their investment strategies. At the same time, fundamentals-oriented gurus have been quite open in talking about their strategies. As a result, it is better for an investor to use the fundamental-based approach, as the success rate is also far higher than in any other strategies.

The author has listed the characteristics of investment geniuses — discipline, focus, intelligence, hard work and ‘extra’ — the great intangible.

As the book rightly says about investing in small-caps and mid-caps, “If you’re after companies with great exciting products that are growing three or four times the rate of the market, with big expectations, you are going to have disappointments. Small companies are prone to erratic earnings swings. It is the nature of the beast. They are about discovery. They are under-owned, under-followed, thinly capitalised, and subject to big moves when institutions find out about them.”