3 Strategies From The World's Greatest Investors

published on 22 March 2022

When seeking answers to life’s difficult questions, I have always lived by the mantra "Don’t try to reinvent the wheel".

Chances are there is someone smarter than me, more experienced than me, and better informed than me, who already possesses the answers I am looking for.

I am the path of least resistance kind of guy. If there is a shortcut, I will usually want to know about it.

The good news is that in the world of investing, there are loads of people who have tried and tested different things. 

The key is to learn from them.

Centuries of combined investment knowledge available at your fingertips.

Brilliant!

The hardest part is figuring out what sources to trust, what to ignore, and what to consider.

To make your life easier, I wanted to share with you 3 of the simplest, yet most effective investing strategies from some of the world’s greatest investors.

I’ve chosen to copy the world’s greatest investors who have already cracked the code.

Important PSA before we continue. The content of this newsletter is not financial advice, and is not intended to suggest what you should invest in. You need to do your own research and make your own decisions when it comes to investing your money.

THE G.O.A.T

Warren Buffett is a household name.

Also known as the "Oracle of Omaha", he is arguably the greatest investor alive today, and one of the Greatest Of All Time (G.O.A.T - Mom, Dad just so you understand!).

Warren Buffett began investing at the age of 11.

He is now 91 years young, and remains the CEO of Berkshire Hathaway, a multinational conglomerate that owns portions of companies like Coca-Cola, Johnson & Johnson, Heinz, Apple and many more.

According to a Forbes article from 2021, his net worth was a staggering $117.9bn.

Not bad!

It’s important to note how Warren Buffett accumulated his fortune. He is known as a legendary stock picker. He has spent his life meticulously analysing and selecting individual companies to invest in and hold for the long term.

Buffett spends an average of 80% of his day (5-6 hours) reading and analysing company balance sheets.

In simple terms, he is an investing polymath. A genius that is borderline omnipotent.

If you read his books, hear him speak, or follow his infamous yearly letter to Berkshire Hathaway shareholders, you will notice he speaks in simple terms.

He makes investing sound easy.

It gives off the false impression that you and I can simply read a balance sheet of a particular company and predict whether it will do well or not.

Trust me, when I say it is not that easy! Not consistently anyway.

Even more interesting than Buffer’s approach to stock picking, is how he plans to invest his $117.9bn estate when he dies.

According to a CNBC article, Buffett’s plan is to invest 90% of his fortune in an S&P500 index fund, which is the opposite to how he built his fortune betting on individual companies to do well.

By investing in the S&P500, he is not trying to pick individual winners or losers. Rather, he is investing in the top 500 companies in America, and believing the economy as a whole does well.

The reason Buffett is taking this approach to his estate is because he believes the vast majority of people will never be able to replicate his success picking individual companies.

Remember this is a man who has regular access to the best minds in the world of finance.

His guidance to regular, everyday investors like you and I remains clear:

"The trick is not to pick the right company. The trick is to essentially buy all the companies through the S&P500 and to do it consistently."

He expanded further on this point in his 2021 annual letter to Berkshire Hathaway shareholders:

"In its brief 232 years of existence ... there has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country’s economic progress has been breathtaking. Our unwavering conclusion: Never bet against America."

So if you are looking for a simple way to copy one of the greats, the S&P500 approach could be a good fit.

At least based on the last 232 years!

My Less Famous Mentor

The second investor I wanted to highlight is not a household name, although he is well known in the Financial Independence Retire Early (F.I.R.E) community.

JL Collins has a blog called "The Simple Path To Wealth", which was recently turned into a best-selling book.

It’s been my investing bible for the past 4 years.

As the name suggests, it’s a simple strategy that is very similar to Warren Buffett’s with a slight tweak.

His approach to investing was inspired by his daughter. Money has always been an important topic to Mr. Collins. He was desperate to instil good financial principles in his daughter, so she could use money wisely and navigate her financial life successfully.

A noble approach by any parent.

He started her early with allowances, envelopes for spending and saving, and endless books on money. He opened a savings account, an investing account, and a mutual fund account for her. He thought she would be as excited as him.

She wasn't.

One day when his daughter was visiting from college, JL started talking about financial management, again.

She stopped him and said, "Dad! I know this is important. I appreciate money. I know I need it. I just don’t want to have to think about it and manage it."

JL very quickly realised this accurately described most people's view towards money and investing.

Not everyone is a financial nerd!

The vast majority of people want to do the right thing with their money, avoid getting ripped off, earn a solid return, and grow their wealth.

All with the least amount of life admin as is humanly possible.

JL listened and decided to take a different approach with his daughter. He laid out 9 steps towards The Simple Path To Wealth.

Step number 6 is where we want to focus. What does he tell his daughter to invest in?

VTSAX - Vanguard Total Stock Market Index Fund

One. Single. Investment.

VTSAX is an index fund, very similar to Warren Buffett’s S&P500 index strategy, with one major difference.

Instead of owning a portion of the 500 largest companies in America, you would own a portion of the 4,136 companies currently in VTSAX - Vanguard Total Stock Market Index Fund.

This particular index fund tracks the performance of +4,000 big, medium and small companies in America.

It includes all the 500 big ones in the S&P500 (Apple, Google, Amazon etc), plus +3,500 more to give you an even more diversified range of companies you are invested in via this index fund.

Below are the top 10 companies you would be invested in via VTSAX. One of the companies being Berkshire Hathaway Inc. (#8), Warren Buffett’s own company!

Berkshire-7jwb2

JL believes that this one index fund will give you the best mix of solid yearly return over the long term, with virtually zero effort or time spent managing your investments.

In case you don’t want to put 100% of your investment into stocks, it may be too risky for you, he suggests buying one other fund to smooth the ride (less risk, but historically lower returns).

VBTLX - Vanguard Total Bond Market Index Fund

I have a Vanguard account in the UK, but they don’t have VTSAX as an option to buy. The closest thing I have seen is the US Equity Index Fund (see below). They are very similar! 

us equity index fund-cdm0r

Both JL Collins and Warren Buffett have very similar strategies. I think they would both approve of each other’s US focused, low cost index fund approach (even though they are slightly different).

It’s impossible to say which of the two index funds will perform better over the next few decades.

Nobody knows!

If someone says they do, run in the other f&@%£$! direction!

Two simple strategies from two legends in the game.

The All Weather Strategy (AWS)

Ray Dalio is a name which rings out in investing circles around the world.

He is the founder of Bridgewater Associates, an investment firm, which he started out of his 2-bedroom flat in NYC in 1975.

It’s now the largest hedge fund in the world. They currently manage a cool $154bn.

The All Weather Strategy was created off the back of a deceptively straightforward, yet complex question that leaders at Bridgewater Associates had been exploring.

What kind of investment portfolio would you hold that would perform well across all economic environments?

After decades of study, the All Weather Strategy was launched in 1996. I am going to do my best to break it down in the simplest of terms.

This strategy gets a bit technical, but for those who want to lower the risk in any economic environment, and still experience healthy returns, this one could be for you!

The main premise of the All Weather Strategy is that there are 4 "economic seasons" that can happen. The All Weather Strategy is designed to survive all economic environments using different types of assets (stocks, bonds, gold) that perform differently during those different "seasons."

The economy is either rising or falling, and inflation is either rising or falling.

Below are the 4 main seasons:

  1. Rising Economic Growth
  2. Falling Economic Growth
  3. Rising Inflation (inflation)
  4. Falling Inflation (deflation)
AWS-8a8kr

Different types of investments perform better in different seasons.

For example, in a Rising Economic Growth season, Stocks, Corporate Bonds and Commodities do well.

Whereas in times of Falling Economic Growth season, Treasury Bonds do much better.

Therefore, you need to have a mixture of all of them, so that no matter what is happening in the economy, your portfolio performs well.

Below is a complete breakdown of Ray Dalio’s All Weather Strategy and how you can recreate it with 5 ETF’s (Exchange Traded Funds).

AWSv2-dofo9

To give you a bit more context to these investments, I have added some numbers below.

Let’s say you had £100,000 to invest, and you wanted to build this strategy:

30% of your money into Stocks = £30,000

  • £30,000 into VTI = Vanguard Total Stock Market Index (very similar to Buffett and JL Collins US index fund)

55% of your money into Fixed Income (which is another word for bonds) = £55,000

  • £40,000 into TLT = ishares 20+ Year Treasury Bond
  • £15,000 into IEI = ishares 5-7 Year Treasury Bond

7.5% of your money into Gold = £7,500

  • £7,500 into GLD = SPDR Gold Trust

7.5% of your money into Commodities = £7,500

  • £7,500 = ishares S&P GSCI Commodity Indexed Trust

A lot more technical, right?

The big question is, does it work?

Let’s take a quick look at how the All Weather Strategy has performed over the last few decades.

Over the past 25 years, the average yearly return of AWS was 7.74%.

Pretty solid.

Below is how the All Weather Strategy compares to the S&P500 strategy from 2002- 2020:

AWS v S&P500-9lirl

A few key things stand out:

The S&P 500 strategy performs better over the time period

  • The S&P500 = 10.49% annually vs 7.71% by the AWS

However, the AWS is much less volatile and less risky than the S&P500 strategy:

  • AWS worst performing year = -5.19% vs -37.02% by the S&P500 during the 2008 global financial crisis

Historically, you can expect better returns from the S&P500, but the ride is a lot bumpier.

Whereas the AWS strategy produces lower growth, but you don’t need to deal with as many wild swings in the market, because it’s designed to perform well no matter what is happening in the world.

Much less stressful.

Conclusion

The biggest thing to remember is that one strategy is not "better" than the other.

There is no right pick vs. wrong pick. They all have their pros & cons.

Paralysis by analysis can often stop people from getting started with investing.

Over the past 30 years, regardless of which of the 3 strategies you picked, you would be far wealthier than saving your money in cash.

So in that sense, they are all "right".

It is my prediction that the same will be true for another 30 years. I don’t have a magic crystal ball (unfortunately), this is just my opinion.

Personally, I have always leaned towards simplicity with my investments. The AWS strategy by Ray Dalio is a bit too technical, even for me.

I mentioned that JL Collins book has been like a bible to me, so it doesn’t take much to figure out which strategy I use ;)

The final thing I will leave you with is that nothing in the world of investing is permanent.

Your strategy will most likely change and evolve overtime. That’s perfectly normal.

What works for you today, might not serve you as well in 10, 20 or 30 years.

Just because you invest in something today, doesn’t mean you can’t change your mind later.

If you have a solid cash cushion saved, and you believe you are ready to start your investing journey, do just that.

Start.

❤️ Patrick & TOMII Tribe

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