How to Instantly Acquire the Knowledge of the World's Most Successful Investors
By Dan Ferris
What would you do if you had a soccer ball coming at you at 50 miles an hour and less than a second to react? Goalkeepers on professional soccer teams face this situation a few times each game. It's called a penalty kick. The victim of the penalty gets to kick the ball straight at the goalie. Aside from looking like a lot of fun, this situation is valuable for you and me as investors. It's a great way to understand one of the biggest mistakes investors make: being too active. The goalie can do three things. He can dive left, dive right, or stay put. As you'd logically assume, staying put in the center is the right thing to do. When the kick is to the center, goalies stop it about 60% of the time. When the kick is left, and the goalie dives left, his success rate falls to just below 30%. When the kick goes right, and the goalie dives right, his success rate is even worse, about 25%.
Logic suggests that most goalies should stay center most of the time, since diving left and right don't work out as well. And what do most soccer goalies actually do? Roughly 94% of the time, they dive left or right. Top goalkeepers said it just feels like they are at least making an effort when they dive. They feel like they're being lazy if they just stay in the center. It feels right to just do something, to make an effort. And it feels wrong to make the least effort.
Contrast the goalkeepers' bias toward action (shared by day traders and other hyperactive souls) with a Warren Buffett quote I've come to agree with over the years: "Lethargy bordering on sloth remains the cornerstone of our investment style."
Since being overactive as a goalie, analyst, or investor is clearly crazy, it's a great idea to seek "professional help" for the cure.
Seeking professional help means buying stocks – like Warren Buffett's Berkshire Hathaway – run by great investors who know how to sit on cash until a suitable investment comes along. Everyone should own at least one professional help stock, if not more.
Here's a list of my favorites, with those I've recommended in the past in italics:
Professional Help Stock |
Lead Investor(s) |
Berkshire Hathaway (BRK-A) |
Warren Buffett |
White Mountains (WTM) |
Ray Barrette |
W.R. Berkley (BER) |
William R. Berkley |
Icahn Enterprises (IEP) |
Carl Icahn |
Leucadia National (LUK) |
Ian Cumming, Joe Steinberg |
Sears Holdings (SHLD) |
Eddie Lampert |
Fairfax Financial Holdings (FFH) |
Prem Watsa |
Brookfield Asset Management (BAM) |
Bruce Flatt |
Winthrop Realty Trust (FUR) |
Michael Ashner |
Vornado Realty Trust (VNO) |
Steve Roth |
Kimco Realty Trust (KIM) |
Milton Cooper, Marty Kimmel |
I highly recommend that you read the annual reports of these companies as soon as possible. You'll find amazing things. For example, in its 2005 annual report, Kimco's Milton Cooper says he and partner Marty Kimmel have bought shares every year for the past 10 years, and never sold a single one.
Professional help companies will keep you sane. As long as you hold on to them, they'll do the right thing with capital, the things most investors can't seem to do... like be patient and avoid hyperactive trading.
Disciplined investors with long-term track records of successfully outperforming the market run these companies. These investors buy assets at bargain prices and hold them for the long term – or they don't buy at all. One of them writes on his company's website, "Intellectually we really don't care much about leaving our capital lying fallow for years at a time. Better to leave it fallow and to wait for the occasional high-return opportunity. Frankly, sometimes shareholders would be better off if we just all went to play golf."
We have two professional help stocks in the Extreme Value portfolio right now: Berkshire Hathaway (BRK-A) and Icahn Enterprises (IEP). Buying shares in these two companies is like hiring Warren Buffett or Carl Icahn as your personal money manager.
I recommended Icahn Enterprises in 2004 because it was controlled by Carl Icahn and it was selling for a 25% discount to book value, which I thought was very likely understated. We bought Berkshire Hathaway for similar reasons: Warren Buffett's presence and an obvious discount to intrinsic value.
So far, we're up about 60% in Berkshire and nearly 600% in Icahn Enterprises. I suspect we won't be parting with them any time soon.
I encourage you to become familiar with the list above of professional help stocks. If you find yourself making any "overactive" mistakes in 2008, these companies could be the solution. // Daily Wealth
Dan Ferris is the editor for Extreme Value
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