2017 Sharemarket Hall of Fame Inductees
Congratulations to current Melbourne coach Simon Goodwin, and former greats Anthony Stevens, Barry Hall, John Halbert and Ron Todd for being inducted in the 2017 AFL Hall of Fame on Tuesday night. Do stand and put your hands together for the one and only, Malcolm Blight, a true Legend of our game. A true contrarian football thinker, someone who was never afraid to do things a little differently. There is a good reason why young AFL recruits are encouraged to study tapes of elite players to fast-track their development and why aspiring senior coaches are recommended to learn the craft by firstly becoming assistant coaches. To become a master of something, you must first learn from a master of that art.
I introduce to you my 'Sharemarket Hall of Fame'.
Thankfully you don't need to dress up as a tradesman or council worker to spy on anyone to obtain intelligence - they're happy to reveal their secrets. Below are the first 3 inductees. More will follow in the future. Inductee 1: Warren Buffett, CEO of Berkshire Hathaway
When it comes to nicknames, this guy has most AFL players covered. He has never been called 'Plugger', 'God' or the 'Buff-star" but he is also known as the 'Oracle of Omaha', 'Sage of Omaha', 'St Warren', and the 'Forrest Gump of Finance'. At the age of 86, he is still looking for billion dollar value accretive deals. Warren Buffett is the biggest shareholder, chairman, and CEO of US listed company Berkshire Hathaway and has made his fortune by buying growth, value and blue chip shares over 65 years. According the Bloomberg Billionaire Index, he is the 4th richest person in the world with a fortune of $76.2bn. Berkshire's share price was approximately $US7 a share when Buffett took over in 1965, it is now trading close to $US250,000. $1,000 invested with him back in 1965 would be worth $10,000,000 today. That's some serious compounding. In his early years, he was influenced by Benjamin Graham (our 2nd inductee) and concentrated on buying average companies at great prices. It wasn't until he met Charlie Munger and read Philip Fisher's work (our 3rd inductee) that he began to buy great companies at fair prices. Buffett's game plan easy to understand, but hard to implement. More than anything else, it requires what many of us think we posses, but when it comes down to the crunch, we lack, temperament. They include: Keep it simple and only invest in what you understand, "Price is what you pay, value is what you get", "Be greedy when others are fearful and fearful when others are greedy", invest for the long term and be patient and never overpay for an asset. For more information on Warren Buffet, I recommend reading Roger Lowenstein's, Buffett: The Making of an American Capitalist. Alternatively, HBO did a great documentary 'Becoming Warren Buffett.'
Inductee 2: Benjamin Graham
If Benjamin Graham was an AFL recruiter back in his day, he would only concern himself with what Champion Data had to say about a players. He was all about the numbers. Champion Date would be his Moody's Manual. If a player was an introvert, extravert, good or bad for the club's culture, he could not care. He mastered the art of finding value in the sharemarket, was a revolutionary investor, best-selling author and inspirational teacher. Known as the 'Dean of Wall Street' and the 'Father of Security Analysis', his entire game plan revolved around numbers. He wrote The Intelligent Investor and Security Analysis, which many (including Warren Buffett) consider to be the most influential and important financial publications ever written. Graham’s investment firm posted annualized returns of about 20% from 1936 to 1956, far outpacing the 12.2% average return for the broader market over that time. Graham's game plan is timeless and has happy to publish his formula. It revolved around a very important concept, and that was investing with a 'margin of safety'. Graham defined it as the difference between someone's estimation of value and the share price. The margin of safety acts as exactly that, a safety net and absorbs the effect of miscalculations an investor may make when valuing a company. If you believe a company was worth $1, you wouldn't buy it unless the share price was at 70c - 30% margin of safety. He loved being a contrarian and used to say, "The fact that other people agree or disagree with you makes you neither right nor wrong". He encouraged independent thinking. Lastly, it was all about quantify, quantify, quantify. If you can't measure it, don't concern yourself with it.
Inductee 3: Philip Fisher
Philip Fisher had the gift of blending quantitative elements (statistics) with qualitative features (items you can't measure). If he was still with us, he would have been headhunted by all the AFL teams to lead their recruitment departments. He mastered the art of identifying the best young and up-and-coming talent the sharemarket had to offer, talent capable of producing and sustaining above average results for the long term. He focused primarily on the qualitative aspects of a business (things you could not measure precisely, brand, pricing power etc.) and pioneered the way investors interpreted the influence of management and a company's ability to effectively invest in research and development in order to grow earnings. He wrote Common Stocks and Uncommon Profits back in 1958 and spent most of his life building and managing Fisher & Co. into a billion dollar investment business and had quite a different game plan to Inductee 2, Benjamin Graham. Management is important. They dictate were capital is allocated. You shouldn't follow the crowd. Malcolm Blight was a great example. If you are brave enough to go against the crowd and you're right with that call, you're going to outperform significantly. Fisher also believed that some companies are better investing back into the business than paying out a dividend and if you know what you're doing, don't diversify too much.
On a more irregular basis, I tap into the advice of David Parkin, Allan Jeans and John Kennedy. All those guys are invaluable - Alastair Clarkson Read Benjamin Graham and Philip Fisher, read annual reports, but don't do equations with Greek letters in them - Warren Buffett
What can you Learn from Them? As an investor, when putting together an investment game plan, you should be thinking along the lines of Alastair Clarkson and other top coaches. Jot down the traits of the Hall-of-Famers whose approaches you feel comfortable making your own, or perhaps tweaking, and put a line through the rest of them. Don't be shy to repeat the process when you read about other successful investors