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June 13, 2012

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Interesting list.

Ponder this more I shall.

"Who really makes money actively trading? Not these people; they have too much money to whip around effectively."

A classic example of the above statement was Peter Lynch. He made a big name for himself when he took over managing Fidelity's Magellan mutual fund in 1977 with assets of $20 million. Between 1977 and 1990 its average annual return was 29% and by the year 2000 its assets had grown to $100 billion even though it was closed to new investors in 1997. The fund's performance attracted more and more investors but performance suffered as the money kept pouring in. Peter Lynch's modus operandi for picking companies was "Buy companies that produce great products that you know about", and in this regard he used to ask his wife what were the hot new products that women were buying?

The popular book Reminiscences of a Stock Operator, by Edwin Lefèvre, tells about one of the most famous investors of all time, Jesse Livermore (1877-1940). He made and lost several fortunes and owned a series of mansions around the world, each fully staffed with servants, a fleet of limousines, and a steel-hulled yacht for trips to Europe. He married his second wife, Dorothy, a beautiful Ziegfeld Follies showgirl, on December 2, 1918, when he was 41 and she was 18.

He became famous by selling short as the market crashed in 1929 and ended up being worth $100 million but by 1934 he had lost it all, declared bankruptcy and was suspended by the Chicago Board of Trade.

Old Limey
Magellan was the first fund I ever bought. Peter Lynch was managing it and I was going to be a millionaire soon.
.... ;-)
I'm not there yet and Magellan has been out of my portfolio for many years.

It's always good to have people to look up to and emulate. This list is inspiring, a good set of qualities. If they can do it, there's no reason why we can't too.

1. Control of emotions is probably a better way to say it. Everyone has emotions. The best listen to their emotions and control them. Emotional responses exist for a reason and it's important to listen to what your emotions are telling you and then thinking rationally about your response. No emotions when investing is impossible and simply wrong.

2. Ego is part of emotions. Ego in being right or wrong might be bad, but ego that provides confidence is very important. Nearly all successful professional investors are ego maniacs in some way or another. They are hyper competitive. They are pure ego. The best have so much ego they will tell you they have zero ego.
3. His name is Jim Simons, he makes a billion a year and he runs one of the most successful businesses called Renaissance Capital. He is one of the most successful asset managers of all time. 1989-2006 38.5% annual returns net of Fees. (Buffett is around 22%). Or you can believe the marketing materials of Fidelity.
4. No ego but zero adjustment to new information or deviation for their investment strategy? Seems contradictory to me. Great investors are always looking for the edge. Always willing to shift. Always dynamic. Disciplined in risk management- absolutely. Discipline does not mean to stick to the same thing no matter what. Buffett has drifted his style a number of times, but has kept his core thesis of buying undervalued investments.
5. Agree 100%. They become experts. They are obsessed.
6. Agree. Because they want to win. (Ego anyone?)

billyjobob:
I never had either the guts or the ego to play the short side of the market whereas many of the most successful investors have a gambler's mentality and have no such qualms.

It must be a nightmarish feeling to have sold short on a stock like Apple and then see it go relentlessly higher day after day, knowing that your potential loss has no limit, and having to face margin calls if you want to continue to hold.

The folks at JP Morgan must have been somewhat in that position with their recent option trades, as it is their stated losses are $2B and heads rolled.

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