In 1927, Gutzon Borglum and his son Lincoln began carving a sculpture into the face of a granite rock formation in the black hills of Keystone, South Dakota. Fourteen years later they finished what would become known as Mount Rushmore, an iconic symbol of the United States that pays homage to four of the most notable Presidents in our nation’s history: Washington, Jefferson, Roosevelt and Lincoln.
In addition to providing a boon to South Dakota tourism, this magnificent monument has given us one of the most fun – and frustrating – questions to debate among friends:
Who would you place on the Mount Rushmore of ___________ ?
The question can be applied to almost any category, from athletes to musicians to writers. The beauty of this exercise is that there is no right answer. We all come from different backgrounds and are influenced in different ways. I thought it would be fun to apply this question to the world of investing and have solicited responses from some of my most respected industry friends and colleagues. So, without further ado:
Morgan Housel, Columnist at The Motley Fool and The Wall Street Journal, @TMFHousel:
My list would be Charlie Munger, Daniel Kahneman, Jason Zweig, and Mohnish Pabrai.
They’re not only brilliant, but figured out how to communicate their points with average people better than anyone else.
If we’re talking investors, it’s probably Benjamin Graham, Seth Klarman, Michael Steinhardt and Peter Lynch. If it’s communicators, it’s probably Daniel Kahneman, John Bogle, Warren Buffett and Jason Zweig.
If I’m only picking four, let’s go Kahneman, Klarman, Bogle and Steinhardt.
It would be impossible to list everyone who has influenced my journey as an investor. There are simply too many to name. As investing knowledge is cumulative, they are all important, but a few individuals really stand out. While my thinking about markets and investing has evolved over time (and continues to evolve), the lessons learned from them have endured the test of time.
From Jack Bogle I learned the importance of investing for the long-term (time and compounding are your friends), asset allocation (diversification over putting all your eggs in one basket), simplicity trumps complexity, and why index funds will beat most active strategies over time (fees/taxes, etc.). I also learned that following the herd and fighting the last war can be treacherous to returns while respecting reversion to the mean can be additive. Lastly, I learned that staying the course during market declines, while not easy, is a long-term investor’s best friend (“don’t do something, just stand there”).
From Robert Shiller I learned that markets are highly efficient but not perfectly efficient because investors can be irrational in their behavior at times. I learned that the market is not “always right” and that speculative bubbles (ex: tech stocks in 2000 and housing prices in 2006) were not figments of my imagination but products of herd behavior and irrational expectations. I learned that measuring “value” solely on the earnings of a single year is not nearly as informative as smoothing out earnings over a longer time period (Shiller P/E or CAPE ratio). I learned that investors who are expecting unreasonably high returns from an asset class (because of high recent returns) will invariably be disappointed.
From John Murphy I first learned of Technical Analysis and the idea that securities could be analyzed and risk managed using prices themselves. I also learned of Intermarket Analysis, which examines the important relationships across (bonds vs. stocks, commodities vs. U.S. dollar, etc.) and within (consumer discretionary sector vs. consumer staples sector) asset classes. I learned how the business cycle can impact market sectors and how to anticipate changes in the business cycle based on sector behavior. Finally, I learned of the different behavior asset classes can exhibit in inflationary and deflationary regimes.
From Cliff Asness I learned of factor investing, the idea that there are certain market anomalies (ex: value and momentum) that have outperformed over time, challenging the theory of perfect market efficiency. I learned about quantitative research and thinking in terms of having a systematic investment process, leaving your emotions and behavioral biases out of it. Most importantly, I learned to be forever humble in this unpredictable business and that long-term investing success is not about “genius” but instead “doing something reasonable that makes sense” and then “sticking to it with incredible fortitude through tough times.”
The first three came to me immediately, Ben Graham, Warren Buffett and Jack Bogle. I had to think for a while about the 4th face; do I go with a trader like Druckenmiller of Tudor Jones? Do I go with an academic like Gene Fama? Do I go with one of the most influential economists of all time, and a brilliant investor in his own right, John Keynes? I settled on a mutual fund manager Peter Lynch.
Ben Graham is the father of security analysis and value investing. He taught Warren Buffett directly at Columbia and has taught millions of investors indirectly with his amazing books; Security Analysis and The Intelligent Investor.
Warren Buffett has the longest track record of excellence of any investor of all time. Before Berkshire Hathaway, he ran a ridiculously successful hedge fund which he founded nearly sixty years ago!
Jack Bogle and The Vanguard Group launched the first index mutual fund 40 years ago. It’s hard to say any single man had a greater impact on the future of the financial industry than Bogle.
Peter Lynch was the face of the mutual fund industry, earning 29.2% over his remarkable thirteen-year career running Fidelity’s Magellan fund. His two books, Beat The Street and One Up On Wall Street helped usher in a wave of investors who wanted to try their hand at picking stocks.
Expecting a high probability of investment success requires four things: managing your behavior, controlling expenses, diversifying, and basing your investment strategy the evidence—not gut feel or forecasts. My selections for this fun exercise reflect this.
Warren Buffett (Behavior) – He’s likely done more to communicate the “right” way to think about investing, and, therefore, managing your behavior than anyone else. His annual letters contain timeless wisdom including the simple to say but hard to execute gems such as: “Our favorite holding period is forever,” and “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Jack Bogle (Costs) – If Buffett’s done more to communicate the thought process behind successful investing than anyone, Bogle’s done more than anyone in demonstrating the imperative of reducing costs. But that’s not all; he’s also done more than anyone (and continues to do so through the firm he founded, Vanguard) to bring down the expenses associated with investing and bringing low-cost investing to the masses.
Eugene Fama (Diversification) – Whether the markets are always, and without fail, perfectly efficient or not, Fama’s development of the efficient-market hypothesis is a useful starting spot for any investor. Beginning with the assumption that neither you nor a manager you select can outperform the market until you can prove otherwise leads to building a diversified, market cap weighting portfolio which for anyone starting out investing is by far the best place to start.
Edward O. Thorp (Evidence) – Mathematician Ed Thorp, known as The Godfather of the Quants, was one of the first to bring a data-driven approach to investing. His Princeton/Newport Partners hedge fund was launched in the late 70’s and was among the first to use rigorous mathematical analysis to drive an investment strategy. This legacy of investing based on the evidence and not merely speculation lives on today. The approach has thankfully grown so that more and more investors can access data-driven investment strategies only previously available in hedge funds.
Warren Buffett, James Simons, Ray Dalio, Jack Bogle
Benjamin Graham for his contributions to the field of individual security analysis.
Daniel Kahneman for his contributions to the field of behavioral finance.
Harry Markowitz for his pioneering work in modern portfolio theory and the quantification of risk.
Robert Merton for contributions to continuous-time finance.
My list reflects my journey over the last 25 years, from academia to a researcher at Morningstar to the hedge fund industry to a writer and practitioner of behavioral finance.
Emile Durkheim. The first book assigned in my first class as a graduate student at the University of Chicago was Suicide, by 19th century French sociologist Emile Durkheim. It’s a tour de force on how to conduct rigorous empirical research on complex social problems. Those methods are every bit as relevant to sensible investing in the 21st century as they were when he wrote the book.
Don Phillips. Don invented the art of mutual fund research at Morningstar and is a central figure to the firm’s “Investors Come First” zeitgeist. More than anything, what I learned from Don was what it means to do right by your clients. That’s a timeless lesson, and one that’s more important than trying to pick the perfect mutual fund.
Davide Erro. In a decade or so conducting due diligence on hedge fund managers, only a handful exhibited what I’ve learned to believe is the recipe for outstanding money management: a tricky blend of both humility and confidence. Davide is one of several guys I met along the way who demonstrated this, including transcending one failed hedge fund to launch another with great success.
Sheena Iyengar. The Art of Choosing changed my life. I read it during a time of professional and personal angst, and Iyengar’s beautiful writing on why the ability to choose is so existentially important made a real impact on me. The obvious choice in behavioral finance is Kahneman and Tversky, but for me, the way Iyengar interweaves dispassionate science and rich personal narrative is an inspiration.
Lawrence Hamtil, Fortune Financial Advisors, @lhamtil:
Adam Smith because none of this would be possible without capitalism.
Joseph Schumpeter because he explained the role of entrepreneurs and risk-takers in wealth creation. No investment opportunities without those guys.
Benjamin Graham for laying the groundwork for modern security analysis
Warren Buffett, not because he created wealth, but because he recognized opportunities and helped others create wealth with his capital.
1. Ben Graham
2. Joel Greenblatt
3. Cliff Asness
4. Daniel Kahneman
Since I went through the pain of a PhD program, three of mine are Eugene Fama, Robert Shiller, and Cliff Asness. Fama for explaining how the market is efficient, Shiller for saying investor behavior matters, and Asness outlines that Value and Momentum appear to work everywhere. The first investing book I read was The Intelligent Investor, so Ben Graham makes the list as well.
We often take for granted the privilege we have as investors of standing on the shoulders of giants that have come before us. Pioneers in asset management, journalism, economics, academia and more have done wonders for our ability to understand the inner workings of financial markets. What I found most fascinating about the responses is that while many went for some of the obvious choices – Buffett, Bogle, Graham, etc. – who are obvious for good reason, while others went for more under-the-radar selections. It just goes to show you that inspiration can really come from anywhere and that there is no one correct philosophy or approach when it comes to investing.
Eleven people is admittedly a small sample size and as such, I’d like to open up the question to anyone who wants to share their choices in the comments section or with me directly on Twitter. As subjective as an exercise like this is, it would be fun to see the aggregated results for a larger group to try and get a sense of what the “people’s choice” Mount Investmore might look like. I’ll look to share the results in a follow up post along with my own personal picks!
(Editor’s Note: When I first put this post together, I was under the impression that it was a quasi-original idea for a blog post. A quick Google search alerted me to the fact that this has indeed been done before by none other than the Godfather of investment blogs himself, Josh Brown a.k.a. The Reformed Broker. Josh, if you’re reading this, please accept this mea culpa and know that more than anyone, your work has been the inspiration for me starting my own blog. That said, curious to know if your picks from 2012 still hold up!)