The Trait of All Great Investors

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The Trait of All Great Investors

By Carl Delfeld, Special Correspondent

Sometimes I think the gurus have got it all wrong . . .

Sure, they’ll offer you stock picks, cutting-edge financial information, and fancy systems, all in the hope that it will produce profits and wealth.

But in my experience – especially as it pertains to tycoon investors – it seems the investment greats pay little attention to these things.

There is one thing that draws the greats together, a trait that they all share. And it’s something bigger and more important than the gurus could ever imagine…

This quote from Winston Churchill does a great job of capturing it:

A pessimist sees difficulty in every opportunity; an optimist sees opportunity in every difficulty.

And where there is great difficulty, there is great value – with significant upside potential.

Following the Greats

Benjamin Graham, Warren Buffett, J. Paul Getty, Sam Zell, John Templeton, Carlos Slim, Li Ka-shing, and Phil Carret all had an innate instinct for distressed situations and bargain-priced assets.

• Sam Zell built a real estate empire worth $5 billion by buying deep-value real estate in down markets in the 1960s, and followed this strategy over the next 40 years.
• John Templeton was a smart guy and a Rhodes scholar, but it was his independent streak that made him scour the world for bargains – such as Japanese stocks in the early 1960s that were ignored by everyone else – that put him in a league of his own.
• Carlos Slim, arguably the richest man in the world, really hit pay dirt when he invested in the fire of the peso crisis, and then made a bold move into the immensely profitable telecom business.

Now, why don’t we all focus on deep-value opportunities?

Several reasons come to mind…

It takes more effort, patience, discipline, and courage than most of us consistently possess; not to mention, deep-value opportunities can be time-consuming to analyze, and it takes courage to take a grubstake when most investors are running for the exits.

We may also lack the patience to wait for the catalyst we’ve identified to kick growth into high gear, unlocking the value of the company or property.

Let’s take a look at legendary investor J. Paul Getty, for example. He was a master at taking advantage of stock and property opportunities in depressed and distressed situations. Much of his great fortune can be traced back to the 1930s, when he scooped up resource stocks and properties at bargain prices.

Getty found these during an economic crisis, in an out-of-favor industry, company, or property caught in a distressed situation. But don’t think he was looking for a quick trade. He was looking for huge returns than can only come with time and patience.

Here’s how he puts it in his classic book – which I highly recommend– How to Be Rich:

The big profits go to the intelligent, careful and patient investor, not to the restless and overeager speculator. The seasoned investor buys stocks when they are low, holds them for the long-pull rise and takes in between dips and slumps in his stride.

Where should you look right now for great bargains?

You should certainly look in the carnage of the resource and energy sector, for companies that have taken a terrible beating this year. There are certainly high-quality companies with good balance sheets that will come out on the other side of this steep downturn, ready to ramp up profits in a market with fewer competitors.

Then there are emerging and frontier markets, which have been out of favor over the last several years, due to the strong U.S. dollar and weak commodity prices.

Many of you know that my favorite here is Indonesia.

With a young population of 255 million, located at the geographic sweet spot of trade and investment flows, with booming consumption that’s doubled over the past decade, and much lower wage rates than China, Indonesia is a good bet to greatly outperform Western markets over time.

And don’t wait forever. I noticed that the Market Vectors Indonesia ETF (IDX) was up by 4% recently.

Good Investing,

Carl Delfeld

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By Carl Delfeld