Timeless investing lessons from legends Warren Buffett, Peter Lynch and John Bogle

Bhakti MakwanaAug 21, 2021, 09:00 IST

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• Warren Buffet, Peter Lynch, John Bogle are the most celebrated investors of all-time that made billions in returns through their investment strategy.
• Here are some sayings by these legendary investors that stay true, regardless of time and geography.
• Investing in the stock market requires a mixture of patience and skills.

Whether you are investing or not, it is pretty sure that most of you must have come across names of these successful and well-known investors -- Warren Buffet, Peter Lynch and John Bogle.

These legendary investors have created an exceptional amount of wealth by investing in stock markets.

Investiing in the stock market requires a mix of patience and skills to invest in the right company. And who can teach better than these investors who have mastered the art over the years.

Warren Buffett

American investor Warren Buffett is among the world’s top billionaires and one of the most celebrated investors in the world. Currently, at 90 years of age, he is the chairman and chief executive officer of Berkshire Hathaway.

Let’s get to know some of his investment mantras that he has followed over the years:

Invest in what you understand

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One simple tip while investing is to only invest in companies/sectors/industries you understand. The habit of investing with your own understanding will solve half of your problems as you will then be able to spot red flags in a company sooner.

Back in the late 1990s, the whole investment world was gravitating towards information technology (IT) and telecom companies, but Buffett chose to stay away as he felt it was too complex to understand. Similarly, he kept away from banks and financials during the sub-prime crisis. This focus helped Buffett avoid burning a big hole in his portfolio during two of the biggest meltdowns in the US markets.

Reading is the trick for new investment ideas

Warren Buffett is an avid reader. He reportedly reads almost 500 to 600 pages every day. Moreover, his annual letters to his shareholders of Berkshire Hathaway always include a couple of book recommendations. He once said, ‘Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not very many of you will do it.’ Apparently, this is the best way to understand new trends and get new ideas because otherwise you tend to stagnate.

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Start early

Buffett started investing when he was 11 years old. Surprisingly, that is how young he was when he developed an interest in stock market investment. This is not to tell you to do the same. Starting to invest regularly in your 20s would also do the work.

The sooner you invest in equities, the more time you have to earn returns. And the more time you get, more returns are earned. That is called the power of compounding and that works perfectly in the case of equities.

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Peter Lynch

Another successful investor of all time is Peter Lynch. He is the legendary former manager of the Magellan Fund at the major investment brokerage Fidelity. He took over the fund in 1977 at age 33 and ran it for 13 years. His success allowed him to retire in 1990 at age 46.

Here are some of his quotes that is a lesson in itself for newbie investors:

“You don’t have to “kiss all the girls.” I’ve missed my share of tenbaggers, and it hasn’t kept me from beating the market.”

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Lynch stated this line in his book ‘One Up On Wall Street’ while saying when he was in high school and college, kissing all the pretty girls was not a realistic goal. The same principle applies to investment as well. You cannot buy all the outperforming stocks or top-performing funds.

He once invested in shares of restaurant chain Dunkin Donuts not after reading about the company, but after being impressed by their coffee as a customer. That’s a clear example of a ground reality performance check.

"Equity [stock] mutual funds are the perfect solution for people who want to own stocks without doing their own research”

It is not possible for every investor to develop a skill to study about every industry and gauge its fundamentals. In this case he suggests one should consider investing in mutual funds.

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“If I could avoid a single stock, it would be the hottest stock in the hottest industry’

Hot stocks in hot industries are defined by Lynch in "One Up On Wall Street" as those that get a lot of early publicity. They may see huge growth at the start but burn out quickly as investors realise that they do not have the earnings, profits, or growth potential to back the buzz. He indicates to avoid such stocks and invest in companies one understands.

“If I could avoid a single stock, it would be the hottest stock in the hottest industry, the one that gets the most favourable publicity, the one that every investor hears about in the carpool or on the commuter train – and succumbing to the social pressure, often buys,” he said in the book.

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John Bogle

He was the founder and chief executive of The Vanguard Group, and is known for creating the first index fund in the world. It was his idea to create an index mutual fund in 1975. Bogle's idea was that instead of beating the index and charging high costs, the index fund would mimic the index performance over the long run—thus achieving higher returns with lower costs than the costs associated with actively managed funds.

Index mutual funds follow a particular stock index. In simple words, it invests your money in those stocks that are part of its benchmark index. So if an index fund follows Nifty 50, it will spread your investment across Nifty 50 stocks.

Here are some of Bogle’s sayings that stand true for every investor.

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Time is your friend, impulse is your enemy

Bogle famously said ‘Time is your friend, impulse is your enemy’. While saying this he warns investors from falling prey to emotions. He advises investors to have rational expectations from their investment.

He believed compounding is nothing short of a miracle. As a result, even little investments started in one’s early twenties are likely to grow into enormous sums throughout a lifetime of investing.

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Invest through an index fund

Bogle believes that buying a low-cost index fund for the vast majority of investors and holding it for the rest of their lives is the best plan. According to him, index funds may provide investors with the market return at market risk, something that many active managers fail to do in practice.

The index fund is a practical, cost-effective way to achieve the market’s rate of return with little work and price. You don’t have to bother about stock selection, fund manager skills and others when investing in index funds. All you have to go through is the market volatility.

“The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course,” said Bogle in his book ‘The Little Book of Common Sense Investing’.

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Stay the course

Bogle frequently advised investors to stay the course even at the most challenging times. It is best to stick to your financial plan no matter what occurs in the marketplace. Changing your strategy at the wrong time can be one of the most costly mistakes an investor can make