It’s the Friday after Thanksgiving Day and I want to take a break today from the news cycle. Let’s lift the velvet rope…and mingle among the wealthiest people in the world. There’s much that we can learn from the “super rich.”
Donald Trump, Michael Bloomberg, Warren Buffett, George Soros, Carl Icahn, Bill Gates, Jeff Bezos, and even Vladimir Putin all have one thing in common: they’re multi-billionaires. Well, no one’s completely sure about Trump’s real net worth. But if it seems to you that billionaires are running the world, you’re not wrong.
A recent study released by the charity Oxfam revealed that the 80 richest people in the world altogether own $1.9 trillion, nearly the same amount shared by the 3.5 billion people who occupy the bottom half of the world’s income scale. Put another way, the richest 1% control more than half of the globe’s total wealth.
The Billionaires Club appears impregnable. But as you build your own net worth, you don’t have to feel locked out of the big leagues. As an individual investor, you can tap into the world’s riches by following the time-proven methods of the billionaire super-investors.
I’ve chosen two billionaires whose ingenious moneymaking methods are particularly worth emulating: Warren Buffett and George Soros. Let’s see how these investment wizards became rich and what they can teach you today.
The Oracle of Omaha
Buffett was ranked this year as the sixth wealthiest person in the world, with a net worth of more than $108.2 billion. How did Buffett amass his vast fortune? He didn’t inherit a real estate empire from his father, as did Donald Trump.
Nor did Buffett line his pockets by creating a kleptocratic petro-state, as did Russian President Vladimir Putin. (Putin’s personal net worth is estimated to be at least $40 billion, but that’s probably a conservative number.) The Oracle of Omaha isn’t a technology brainiac like Bill Gates, an industry-disrupting entrepreneur like Jeff Bezos, nor a Gordon Gekko-type corporate raider like Carl Icahn.
Buffett simply buys stock. He started buying stock at the age of 11.
As chairman, CEO and largest shareholder of Berkshire Hathaway (NYSE: BRK-A, BRK-B), Buffett follows the principles of “value investing” pioneered by Benjamin Graham, whereby he finds equities with prices that are unjustifiably low according to their intrinsic worth.
Buffett once said: “In the short term the market is a popularity contest; in the long-term it is a weighing machine.” He doesn’t necessarily wait for the market to eventually reward the merits of underappreciated stocks; he chooses stocks according to their potential as companies.
Buffett looks for strong balance sheets, good products, market domination, and high-quality management. He pays careful attention to debt, profit margins and return on equity. He emphasizes long-term ownership of a company, not just the chance for capital appreciation based on market dynamics.
Investors have learned that it pays to follow the buy-and-sell decisions of Warren Buffett.
The Man Who Broke the Bank of England
With a net worth of $6.7 billion, Hungarian-born George Soros is one of the 30 richest people in the world. His ranking fluctuates because of his prolific charitable giving. Soros’ philanthropic support of various political entities has generated controversy, but that’s not the concern of this column.
Here’s what matters: As chairman of Soros Fund Management, Soros has executed contrarian plays of historic brilliance.
Soros is known as “The Man Who Broke the Bank of England” because of his short sale of US$10 billion worth of British pounds, reaping him a profit of $1 billion during the 1992 “Black Wednesday” currency crisis in the UK. He also made almost $1 billion shorting Japanese yen in 2012 and 2013.
Soros once said: “I put forward a pretty general theory that financial markets are intrinsically unstable. That we really have a false picture when we think about markets tending towards equilibrium.”
Soros often uses a strategy whereby the outcome of a trade probably has more profit than loss or risk taken. The upside potential may be greater than the downside loss, or the downside is limited but the upside is unlimited.
Soros made a killing from the market plunge caused by Britain’s referendum vote on June 23, 2016 to leave the European Union. Among his winning “Brexit” trades were a $100 million bet against Deutsche Bank (NYSE: DB); a put options bet against the S&P 500 Index; and large holdings in gold miner Barrick Gold (NYSE: GOLD) and the SPDR Gold Trust ETF (GLD).
Soros has earned huge returns by anticipating, understanding and exploiting the knee-jerk, reflexive response of investors to temporary or cyclical events. His success epitomizes the enormous gains available if you’re armed with the right information and trading tools. Soros teaches us that it’s consistently profitable to think like a contrarian.
Editor’s Note: I expect the stock market to rebound in 2023, but with bumps along the way. Are you looking to profit in the new year, but with less exposure to risk? That’s where my colleague Jim Fink comes in.
Jim Fink is chief investment strategist of Options for Income, Velocity Trader, and Jim Fink’s Inner Circle. Jim’s investment methods have enabled him to take his life’s savings of $50,000, turn the amount into $5 million, and retire early at age 37.
Jim has been sharing his trading secrets for over a decade, giving regular investors not just one, but two different opportunities to get paid every single week. In fact, while the market tanked several times over the last few years, he hasn’t closed out a single losing trade.
To learn more about Jim Fink’s money-making methods, click here.
John Persinos is the editorial director of Investing Daily.