Top Stock Market Investors

by Gavin in Blog, Tips and Hints for Becoming a Better Investor, Tips for Beginners

March 25, 2011 • 6 comments

One of the keys to successful investing is to follow what the top stock market investors do. The below list is who I believe are the top stock market investors of all time. Learn the principals of what these top investors preach, and it will help you improve your investing. These investors have developed techniques and principals that have been proven to work. My advice to you would be to read all you can and learn all you can on how they became great traders and learn from the best. By the way, I saved my favorite till last!

George Soros

George Soros is the founder and Chairman of Soros Fund Management and established the Quantum Fund in 1970. The Fund returned 42.6% per annum until 1980. He is also known as “the Man who broke the Bank of England” after he short-sold the British pound and forced the currency out of the ERM on 16th September 1992 earning $1 billion in the process. His style is as a short term speculator, and his buy and sell decisions are based on his instincts. He specializes in bonds and currencies, and turns broad economic trends into highly leveraged plays.

David Ryan

David Ryan started trading stocks with legendary investor, William O’Neil decades ago but his very first stock was $1 stock in a candy company as a child. He now owns own Ryan Capital Management. He appreciates the patterns that stocks make, as buyers and sellers push them higher and lower. He believes you must have a love for the market in order to be successful in this game. Ryan was attracted to William O’Neil’s CANSLIM approach to trading and investing in stocks for some pretty straightforward and level-headed reasons. Admits Ryan, “it took a few years to become automatic” in terms of learning, adopting and effectively executing O’Neil’s famous CANSLIM strategy. “I made a lot of mistakes and kept making mistakes,” he says, telling a story about how he took an account from $25,000 all the way up to $50,000–then back down into the teens. His challenge then was to avoid buying overextended stocks–a problem that still challenges traders who buy breakouts. But slowly over time–and with a great deal of discipline–Ryan managed to change his thinking and, eventually, become a profitable trader for O’Neil’s firm. David Ryan recommends that traders only trade with money they can afford to lose. While it is critical for trader to learn how to admit mistakes (“every day you have to throw your ego in the trash”), he still recommends that people keep 90% of their cash in yield-bearing instruments, and only trade with the remaining 10%. This way, as the trading maxim goes, you are never “trading your lifestyle.”

Gerald Loeb

Gerald Loeb was a founding partner of E.F. Hutton & Co, a renowned Wall Street trader, and the author of the books The Battle for Investment Survival and The Battle For Stock Market Profits. Loeb promoted a view of the market as too risky to hold stocks for the long term in contrast to well known value investors. Although he had largely avoided personal losses, the Wall Street Crash of 1929 greatly affected Loeb’s investing style, making him skeptical of holding stocks for the long term.

Paul Tudor Jones

Paul Tudor Jones is the founder of Tudor Investment Corporation, which is the management company for his various private investment partnerships. As of March 2010, he was estimated to have a net worth of USD 3.2 billion by Forbes Magazine and ranked by them at #297. In 1976, he started working on the trading floors as a clerk and then became a Stockbroker for E.F. Hutton. In 1980 he founded Tudor Investment Corporation which is today a leading asset management firm. The Tudor Group, which consists of Tudor Investment Corporation and its affiliates, is involved in active trading, investing and research in the global equity, venture capital, debt, currency, and commodity markets. One of Jones’ earliest and major successes was predicting Black Monday in 1987, tripling his money during the event due to large short positions

Nicolas Darvas

Nicolas Darvas started off as a ballroom dancer with his sister Julia. They became the highest paid ballroom dancing pair in the United States. The pair became so successful that by 1956 they were touring the world. While on tour a Toronto nightclub owner could not pay Darvas in cash, so he paid him with three thousand shares of a Canadian mining company called Brilund. Almost two months later, the stock tripled and Darvas made a nice profit. This was the start of his life of trading. In fact, in May 1959, the Time Magazine devoted almost a full page in its Business section to the extraordinary Stock-Market story of a dancer—Nicolas Darvas. The Times told how this complete non-professional, who ignores tips, financial stories and brokers letters was able to make himself a millionaire several times over. With just $10,000 to invest, he managed to make $2,000,000 in just 18 Months in the stock market. What’s even more exciting is the fact that he did so while on tour overseas.

‘The Darvas Box Theory’ as we now know it allowed Darvas to identify only those stocks that were on the verge of making huge profits. This box theory not only gave Darvas a predefined point where to buy but also predefined points to sell. In short, Darvas had perfected a method that allowed him to minimize losses, while maximize profits.

John Paulson

John Paulson is the Founder and President of Paulson, a hedge fund company based in New York City. He is the 45th on the Forbes’ World’s Billionaires list. In 2006 he bet against the subprime mortgage market prior to its collapse and became the biggest star in the hedge fund world and achieved a 590 percent return. Again in 2008, he shorted financial institutions that were exposed to the credit crisis. In early 2009, he went long on distressed credit as the market bottomed out and the valuation on these assets looked extremely attractive. Some thought Paulson, whose background was in merger arbitrage, was a one-hit wonder with his brilliant macroeconomic call. However, Paulson has made a string of correct big calls in recent years that have solidified his status as a macroeconomic maven.

Steve A. Cohen

Steve Cohen is the most powerful trader on Wall Street you’ve never heard of. The billionaire, who earned an estimated $128 million last year and $428 million in 2001, according to Institutional Investor, has a highly secretive and stupendously successful $4 billion group of hedge funds that bears his initials. He is considered to be a market genius by even his harshest critics. His firm routinely accounts for as much as 3% of the New York Stock Exchange’s average daily trading, plus up to 1% of the NASDAQ’s — a total of at least 20 million shares a day. Cohen manages less money than hedge-fund titans such as George Soros or Julian Robertson did at the height of their powers, but his sheer trading prowess leaves them in the dust. At the heart of his empire are 40 “portfolios.” The primary focus is a long-short equity strategy, but more recently the firm has branched out into convertible and statistical arbitrage, quantitative strategies, and big bets on interest rates. Investors’ money is channeled through seven different “portfolio companies” or funds — including a core fund, a global diversified fund, and a health-care fund, each with an offshore counterpart. But Cohen’s reach, and power, extend well beyond the seven funds. Top SAC traders have contracts that contain provisions giving Cohen the right to fund up to half their capital if they leave to start their own funds, as many have done. He sometimes gets more favorable terms than other investors, such as being able to pull out his money early. Says a former SAC trader: “Cohen’s presence, and market-moving capability, is probably the largest of anyone on the Street.”

Jim Rogers

James Beeland Rogers, Jr is an American investor and author. He now teaches finance at Columbia University’s business school and is a media commentator worldwide. He is the author of Adventure Capitalist, Investment Biker, Hot Commodities, A Gift to My Children, and A Bull in China. He is chairman of Rogers Holdings and Beeland Interests, Inc. He was the co-founder of the Quantum Fund with George Soros and creator of the Rogers International Commodities Index (RICI). Rogers is an outspoken proponent of the free market, but he does not consider himself a member of any school of thought. He is well known for deciding to “retire” in 1980, and spend some of his time traveling on a motorcycle around the world looking for new investment ideas. It was during this time he wrote Investment Biker.

This is what Roger’s says you should do to get rich: Take your money, put it in Treasury bills or a money-market fund. Just sit back, go to the beach, go to the movies, play checkers, do whatever you want to. Then something will come along where you know it’s right. Take all your money out of the money-market fund, put it in whatever it happens to be and stay with it for three or four or five or 10 years, whatever it is. You’ll know when to sell again, because you’ll know more about it than anybody else. Take your money out, put it back in the money-market fund, and wait for the next thing to come along. When it does, you’ll make a whole lot of money. Your default position should always be short-term instruments. And whenever you see anything intelligent to do, you should do it. That just means you should keep your money in cash and wait for an investment to come along which you understand well, is safe, and looks like a winner.

Jesse Livermore

Jesse Livermore grew up on Wall Street. This allowed him to develop an uncanny sensitivity for the markets, and gave him the edge he needed to reap huge profits, often by trend trading. He was described by Time Magazine as the most fabulous living US share trader. Many traders today know him from the book “Reminiscences of a Stock Market Operator”, which is filled with advice on trading, e.g. “Never hold onto a losing position!” Livermore’s greatest profits were made in 1929, when he shorted the market during the Great Crash, earning him $100 million.

William O’Neill

William O’Neill is the Chief Executive Officer of William O’Neil and Company, an advisory firm based in Los Angeles, California, USA.

O’Neil started out in 1958 as a stockbroker. During his three years in the job, he made a careful study of the top-performing mutual funds. He decided to copy these methods. Within a year or so, he had turned $5,000 into $200,000. He was one of the famous ‘performance’ fund managers of the Sixties, and a pioneer of database-driven stock selection. In 1983, he launched a financial newspaper to rival the Wall Street Journal, called Investor’s Daily. Against the odds, this has become a widely-read and well-respected alternative to its venerable competitor. Part of its appeal rests on its unique data tables, which also underpin his own investment approach and his advice to clients. O’Neil’s track record has had its ups and downs, particularly during and just after the ‘go-go’ years of the Sixties. But he is thought to have averaged an annual return of over 40% on his personal account in the ten years up to 1989.

One of O’Neil’s earliest coups was in the drug stock Syntex. The company was the first mass manufacturer of the birth control pill at the start of the ‘sexual revolution’. It had just announced quarterly earnings growth of 300% when he bought the stock in 1963. As the market woke up to the potential, the price rocketed from $100 to $550 in 6 months, making him enough money to set up his own business.

The key idea is to seek out only those growth stocks that have the greatest potential for swift price rises from the moment you buy them. In essence, buy the strong, sell the weak.

He suggests you remember the seven criteria listed below by the acronym C-A-N-S-L-I-M, adding that investment is like dieting: anyone can manage it with a little effort and discipline.

C = Current quarterly earnings
Look for companies that have just announced quarterly earnings increases of 40-500% (Here in the UK the equivalent is interim or annual increases).

A = Annual earnings increases
Look for companies with at least 5 years of prior growth, at a compound rate of no less than 25%. Prefer those with the most consistent growth. The P/E ratio is relatively unimportant. On average, it may range from 20 to about 45.

N = New products, new management, new highs
The best stocks have a new story behind them, such as new and exciting products or new directors. They are also breaking out to new highs. On a chart, they typically form a shape that looks like ‘a cup with a handle’.

S = Supply and demand
The less stock there is to buy, the more any buying will drive up the price. Look for companies with around 10-25 million shares in issue. Watch for a rise in the amount of shares traded (‘volume’) of at least 50% above average.

L = Leaders and laggards
Stick to the 2 or 3 stocks showing the highest relative strength in their sector. They should have outperformed 80-90% of all other stocks in the last 12 months. Stay away from those that have underperformed for more than 7 months.

I = Institutional sponsorship
Identify the 3-10 best performing institutional investors. Check out the stocks they are buying as candidates for your own portfolio. Favor companies which are ‘under owned’ by the professionals (i.e. 10% or less of the shares belong to institutions).

M = Market direction
Check the market daily for early signs of any major downturn. (O’Neil discusses various indicators of this in his book How to Make Money in Stocks. But it needs to be said these can be unreliable in practice). Consider trying to avoid making new purchases once a decline of 10% or more gets underway.

William O’Neill is famous for the following sayings: “The whole secret to winning and losing in the stock market is to lose the least amount possible when you’re not right.” “Always sell your worst stock first.” “What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower.” “History will repeat itself.”

There you have it, my top stock market investors of all time. I hoped you’ve learnt something and are now inspired to go on to bigger and better thing with your investing.

Happy Trading!