Who is the best investor in history? Few would argue that Warren Buffett earns the title as the greatest investor of all time.
Berkshire Hathaway, the investment conglomerate led by Warren, has averaged returns of 20% since inception versus just 10% for the S&P 500.
It must be said however that from 2002-2022, Berkshire’s returns have fallen to approximately 10% annually where in the two decades between 1976-1996, they averaged 35%.
The reason for the relative underperformance has to do with what Buffett calls The Law of Large Numbers, meaning that as Berkshire Hathaway (NYSE:BRK.B) grows in size it becomes ever more difficult to outperform the market.
Unlike a retail investor who could invest $1 million and barely move the market at all, Berkshire’s bets are often in the tens of billions of dollars, so its transactions can move the market.
Buffett can’t plunge into and out of a position quickly like a retail investor. Instead, he must slowly build a position over time and similarly, to avoid a price crash when he exits, he must sell over a longer duration than that to which a retail investor is constrained.
This graphic depiction below highlights how Buffett’s returns have fallen over time. From the early days when he could deploy all his dry powder and still not jolt the market to today when Berkshire is the whale in the market, the returns have naturally declined.
How Did Warren Buffett Learn To Invest?
Warren Buffett learned much of his investing craft from Benjamin Graham, his professor at Columbia University.
He credits his partner Charlie Munger, too, with having the fastest 10-second mind in history. Charlie has been his trusted lieutenant for decades, advising him on prescient investments, like BYD in China that remains among the most successful of all time when the returns on investment are calculated.
Buffett also speaks highly of his insurance chief, Ajit Jain, who he says is responsible for creating enormous wealth at Berkshire Hathaway. The insurance float at Berkshire allows the firm to take in capital today and be allocated for investment purposes while claims are paid in the future. Over time that business model has proven enormously lucrative.
In the early days, Buffett invested in companies that he assessed were trading at bargain prices. This was a key skill he learned from Ben Graham. As his own investment philosophies evolved, he learned it was better to invest in a great company at a fair price than a fair company at a great price.
He describes the latter as picking up a cigar-butt because it might have a few more puffs in it but that’s about all you can look forward to. By contrast, when he bought Apple (NASDAQ:AAPL), it was trading at a price-to-earnings ratio of around 10, which is not a steal but a fair price, and yet he knew the company had an extraordinary business model.
Warren has described Apple as having a loyalty among consumers that few companies can ever hope to emulate. His analogy is that if an Apple iPhone owner had to give up a $35,000 used car or their Apple iPhone, they would choose the former.
What that revealed to Warren was that Tim Cook’s Apple had enormous pricing power and could, if it wished, boost its margins. As a result, Warren made it clear that no business in his portfolio is as great as Apple.
Other Great Investors In History
Some other investors rank very well in history when you evaluate them by other measures, such as:
- Is it the investor who made the most money?
- The investor who generated the largest returns?
- The one who developed the most effective investment strategies?
- Or perhaps the investor with the longest streak of beating the market?
Peter Lynch, net worth $450 million, didn’t just generate above-average returns in his personal portfolio. Lynch managed Fidelity’s Magellan Fund for 13 years, and in that time, annual returns averaged more than 29.2 percent – nearly twice the S&P 500’s return for the same period.
Investors who put $10,000 in the Magellan Fund when Lynch took it over in 1977 had a portfolio valued at $280,000 when he left in 1990.
Lynch wrote a collection of best-selling books that taught readers at all levels of experience how to maximize their portfolio growth. He encouraged taking a long-term view on investing with a constant focus on the underlying companies’ fundamental values.
Peter Lynch Quote: “Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it.”
What Is Benjamin Graham’s Investment Strategy?
Benjamin Graham is best known for developing the comprehensive value investing strategy that has formed the foundation of many portfolios in the decades since his book The Intelligent Investor was published.
Essentially, Graham taught his readers to identify and purchase undervalued stocks – those that traded below their intrinsic value. He recommended ignoring short-term changes in stock prices and choosing companies based on fundamental features and characteristics instead.
It’s worth noting that billionaire Warren Buffett credits Graham’s mentorship with much of his success, and Buffett still applies many of Graham’s value investing principles today.
Benjamin Graham Quote: “Wall Street people learn nothing and forget everything.”
Who Was John “Jack” Bogle?
John “Jack” Bogle might be considered the best investor in history because he made the biggest difference for average consumers.
He developed low-cost index funds and offered them through the firm he founded, The Vanguard Group. These funds allowed investors with limited experience to participate in the market without losing money to fees.
Since Bogle’s first index fund launched in 1975, The Vanguard Group has grown its family of funds to nearly 170. The firm has more than $2 trillion in assets under management, and it is widely regarded as an industry leader.
John Bogle Quote: “Don’t look for the needle in the haystack. Just buy the haystack.”
Outside of the academic community, few people have heard of David Swensen. However, if you ask anyone associated with Yale University, David Swensen (net worth $1.5 billion) was the best investor in history. His personal fortune wasn’t his greatest claim to fame. Swensen is known for his exceptional management of the Yale University Endowment Fund.
In 1980, Swensen graduated from Yale with a Ph.D. in Economics. After working with several notable investment firms, he returned to Yale in 1985 and took charge of the University’s endowment.
Over the 30+ years he was responsible for the fund, his annualized returns came in close to 14 percent – a full four percent higher than the larger market.
Swensen contributed to the industry’s understanding of investment strategy by introducing new methods of portfolio management – the ones most commonly in use today. Specifically, Swensen demonstrated that diversified exposure to multiple high-return asset classes offered the highest likelihood of long-term success.
David Swensen Quote: “Most active mutual funds are more interested in collecting fees than in boosting returns for investors.”
Stan Druckenmiller may be last on our list but he arguably deserves to be first for one primary reason. During the 30+ years he managed money, Druckenmiller famously had not a single down year, a remarkable achievement that no other investor can rightfully claim.
Not only did he not have a down year but he also produced average annual returns in excess of 30%, a feat that is virtually unrivaled.
Few in the investment world can even come close to his track record. Nowadays, Druckenmiller doesn’t invest others’ money but instead oversees the Duquesne Family Office, a billion dollar fund that still operates on the tried and tested principles that worked for Stan for so long; good companies with good charts.
Stan likes to stay that among 5,000 companies there are at least 20 that will have good fundamentals and good-looking stock charts. Both are a requirement for him to part with his money.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.