Not all of the greats in Ron DeLegge’s entertaining and informative book, Habits of the Investing Greats can be described as celebrated.
Ronald Read, a janitor from Brattleboro, Vt., left a portfolio worth $8 million at his death. DeLegge says Read did it by practicing one of the 26 investing virtues DeLegge endorses: perseverance.
“After his death in 2014, Read’s family was amazed to learn about his hidden wealth. The Wall Street Journal reported he owned ‘at least 95 stocks at the time of his death, many of which he had held for years, if not decades.’ Among Read’s portfolio holdings were venerable companies like Johnson & Johnson, Dow Chemical, J.P. Morgan Chase, Procter & Gamble and CVS Health.’’
Read rode out recessions, financial crises and burst bubbles, DeLegge says, while practicing a valuable habit: “Resist the urge to sell your investments at the worst possible time, after or during a bear market.’’
Investors and well-schooled financial advisors alike can glean valuable nuggets from DeLegge’s book, which matches financial greats with the habit that best defines their investing style.
DeLegge is founder of ETFguide.com and host of the Index Investing Show. He created the Portfolio Report Card—a grading system that has been used to analyze and diagnose more than $200 million worth of investments
Among the 26 behavioral habits that DeLegge says are a must to succeed are being calculated, defensive; flexible and humble as well as imaginative, philosophical, realistic; sober and thrifty.
His gallery of greats includes Bernard Baruch, Benjamin Graham, Charles Dow, John Bogle, Warren Buffett, Carl Icahn, Paul Tudor Jones II, Charlie Munger, Chris Sacca, Muriel Siebert, John Templeton and other major achievers.
Understanding behavior has become so critical in investing that it has been studied and codified by Daniel Kahneman, Robert J. Shiller and Richard Thaler, whose findings have earned them Nobel prizes in economics.
“What we’ve learned is that behind our choices and habits is a complex web of psychological, cognitive, cultural, emotional and social factors,’’ De Legge writes.
“Investment results (good or bad) are highly correlated with behavior (good or bad). There is little variability among the investing greats in the specific habits that led them there.’’
Mutual fund great and Templeton Growth Fund creator John Templeton, the man whom Money magazine said was "arguably the greatest global stock picker of the century,’’ is remembered for his habit of calculation. DeLegge says that Templeton weighed the pros and cons of his investing choices before making decisions, so that his choices were made “with a high probability of positive outcomes.’’
Warren Buffett’s teacher and mentor, Benjamin Graham (The Intelligent Investor) is admired for his defensive approach to investing. DeLegge says that Graham honed this behavior from having endured the stock market crash of 1929 and the Great Depression
“Graham applied his margin of safety idea in the context of selecting individual stocks. As Graham taught, if people bought stocks at prices below their intrinsic value, it would provide an adequate cushion or, as he called it, a “margin of safety.”
“What type of assets should you use for your portfolio’s margin of safety? The key characteristics for assets inside your portfolio’s margin of safety are: (1) they should not lose market value, (2) they should not have market volatility, (3) they should provide liquidity, and (4) they should provide principal and income guarantees,’’ DeLegge says.