Hulme 1 Chrissy Hulme Investments Management, FIN 321 Professor Sandberg 8 November 2005 Investment Icons and their Unique Styles In selecting each individual to write about, I looked for something that really caught my attention. When researching Warren Buffet, hundreds of articles came up saying investment genius, the world’s greatest stock market investor, “The Oracle of Omaha”, and many more one liners stating his superb investment style. I continued my research choosing Michael Milken, and eventually Bill Nygren. Michael Milken caught my attention immediately when I saw the words Prostate Cancer Foundation. When I realized how involved he was with medicine and how generously he gave his time and effort in finding cures for cancer and other illnesses, I knew I wanted to learn more about him and his investment style. Lastly, I chose Bill Nygren because of a quote I read, stating “frustrated athletes tend to make good investors” (http://money.cnn.com 1). Having been an athlete all my life, I found him an interesting investment professional to research. Warren Buffet is quite a quirky man worth over $36 billion dollars. His investment style “is the antithesis of the typical Wall Street investor, preferring to operate his company out of Omaha, Nebraska, instead of New York City” (http://www.askmen.com 1). At the early age of 11, he invested in his first stock. Since then, he has amassed a fortune becoming the second richest man in the world behind Bill Gates, credited to “his uncanny ability to pick the right stocks at the right time” (http://www.askmen.com 1).
Hulme 2 Warren Edward Buffet was born in Omaha, Nebraska on August 30, 1930. He is the son of Howard Buffet, a stockbroker turned Republican congressman. Since an early age, Buffet was interested in business and the idea of making a profit. At age 11, he bought his first stock, three shares of Cities Service Preferred at $38 dollars a share (http://www.askmen.com 1). By the age of 14, he amassed $1,200 by saving money from his two paper routes. He immediately invested in 40 acres of Nebraska farmland, which he leased to a tenant farmer (http://www.askmen.com 1). He then moved on to college, where he attended Wharton at the University of Pennsylvania and then transferred to the University of Nebraska. As soon as he read Benjamin Graham’s “The Intelligent Investor” Buffet knew his calling. He followed Graham’s advice, by ignoring trends on Wall Street, and investing in stocks that trade far below their actual value (http://www.askmen.com 1, 2). He continued to use this advice and purchased stock in Berkshire Hathaway, a New Bedford, Massachusetts textile mill. He invested Berkshire’s capital into other businesses, such as American Express and Coca-Cola, solid companies that were “undervalued and inexpensive at the time” (http://www.askmen.com 2). He used this technique throughout his investment career and made a fortune because of it. He refused to invest in companies that he did not understand, staying clear of Microsoft. Also, Buffet stated he won’t “invest in a company unless he can “see” it, unless he can imagine what its balance sheet might look like in a decade or two”, referring to Internet stocks (http://www.salon.com 3). Strengths: Ability to spot undervalued companies and purchase them for cheap.
Hulme 3 Be patient enough to wait for those companies to finally increase in value. Ignore market trends and go with a simple, yet systematic approach. Recognize unknown companies and wait for them to become extremely successful. Beat the average return of the S&P 500 thirty out of thirty-one years. Make a $36 billion fortune out of almost nothing.
Weaknesses: Ignores the technology industry and loses potential money made. Valued at $36 billion, yet only donates $11 million to $12 million a year. Does not invest in market trends that potentially could make a great amount of money after held for only a short period of time. Does not take much risk, if any at all.
Even though Warren Buffet is not the most charitable investor, he still knows how to pick a stock. Sticking with his approach of “ignoring both macroeconomic trends and Wall Street fashions, he looks for undervalued companies with low overhead costs, high growth potential, strong market share and low price-to-earning ratios, and then waits for the rest of the world to catch up” (http://www.salon.com 2), he has done incredibly well. Michael Milken, known as “The Man Who Changed Medicine”, actually spent the better amount of his life in finance. “Milken is often said to have revolutionized modern capital markets” (http://www.mikemilken.com/biography 2). He is said to have made them more efficient, dynamic and democratic by innovating a wide range of financial techniques. This was able to finance much of the early growth of cable television,
Hulme 4 homebuilding, cellular phones, and other industries (http://www.mikemilken.com/biography 2). Born in Los Angeles, Milken graduated from Birmingham High School, where he was able to play numerous sports, as well as become the president of the Service Honor Society. Even in high school, he was able to extend a giving hand to others. He went on to graduate from the University of California at Berkeley, as well as receive his master’s degree in business administration from the University of Pennsylvania’s Wharton School (http://www.mikemilken.com/biography 3). From there, he moved on to conquer Wall Street. Michael Milken created millions of jobs by his use of equity-based securities, bonds, and hybrids to build the right capital structure for his clients. “The restructuring job started by Mike Milken has been completed by globalization of many markets” (http://www.mikemilken.com/biography 3). Starting in 1969, he joined Drexel Burnham Lambert, where he helped finance thousands of companies. “By 1976, the financial theories that he developed in the 1960s had been proven in the world’s markets and now are considered mainstream” (http://www.mikemilken.com/biography 3). Strengths: Created millions of jobs by creating the right capital structure for his clients. Recognized for his three decades of medical research toward cures and improved treatment outcomes for all serious diseases. Supported extensive programs in such areas as youth programs, inner-cities solutions, assistance to families of children with cancer, etc.
Hulme 5 Founded the Prostate Cancer Foundation, the world’s largest philanthropic source of funds for prostate cancer research. Used his fortune in finance to help others now and in the future.
Weaknesses: Not as involved in the financial market because of philanthropic responsibilities. In 1989, the government charged him with securities/reporting violations. Was assessed a $200 million fine and incarcerated twenty-two months for five violations in his twenty years on Wall Street. Because he is not as involved in capital markets, we are losing out on his investment strategies and insights that go along with them. Overlooking the fact that he was charged with securities/reporting violations, Mike Milken still has revolutionized modern capital markets and set very high standards for those who follow. Speaking about his company, “Drexel’s use of high-yield bonds made it easier for companies to raise capital, and their widespread use of leveraged buyouts opened the door for the company’s owners – its shareholders – to strip power from unresponsive managers. On balance, the innovations they introduced made capitalism more dynamic” (http://www.mikemilken.com/fincareer 1). This is just a small look at how he changed the industry over his twenty year stint on Wall Street. Like Warren Buffet, Bill Nygren believes in buying good businesses at inexpensive prices. He is very specific when buying/selling a security and makes sure he assesses them by maintaining three key factors: companies trading at less than 60% of the firm’s estimate of underlying business value, free cash flows and intelligent investment of excess cash, and high level of manager ownership (http://www.mastersfunds.com 1).
Hulme 6 Stock quotes are a major aspect of Nygren’s life, twenty-four hours a day. He is constantly thinking about investing and the statistics that go along with it. Because he was a failed baseball player in high school, he focused on the statistical side of the game, which just happened to run next to the stock quotes in the local newspaper (http://money.cnn.com 1). Bill Nygren grew up in St. Paul, Minnesota, playing for several softball teams during the week. He was able to secure a job bagging groceries, which eventually led him to his investment in buying ten shares each of three stocks (http://money.cnn.com 2). After receiving a bachelor’s degree in accounting from the University of Minnesota, he received a master’s in finance from the University of Wisconsin. Next, he was offered a job for Northwestern Mutual Life, but had conflicting ideas of how to pick successful stocks. Then, he was recruited by Harris Associates in 1983; luckily, having a similar style, in which he immediately fit in. “A lot of the stocks I was working on they were (working on)…We had the same thought process” (http://money.cnn.com 2). Unlike traditional value managers, Bill “assesses a company’s worth using measurements that make sense in the firm’s industry, not just the standard price-to-earnings ratio” (http://money.cnn.com 2, 3). Bill Nygren has very specific targets he likes to hit in order to buy/sell a company’s stock. He says “he lets a stock go when it is selling at ninety percent of its intrinsic value”, which distinguishes him from other value managers (http://money.cnn.com 4). Obviously, his targets must be on point, or he would not have over $15 billion under management (http://www.mastersfunds.com 1).
Hulme 7 Strengths: By choosing a below average risk, he has been extremely successful in choosing stocks. His willingness to seek opportunities in a growth area means his funds are likely to get “fairly consistent good returns”. After taking over Oakmark Fund, it has delivered nearly a 20% return. His second largest single investment is in Oakmark Fund, meaning he must really trust his system of choosing stocks and abiding by targets. Has over 20 years of investment experience.
Weaknesses: Will not make as much profit because he invests in “safer” securities/stocks. Will not consider “companies whose managements’ economic interests are not aligned with those of shareholders”, which may eliminate some top prospects (http://money.cnn.com 3). By abiding strictly to targets, he may lose out on some investments offering a faster growth rate, which can turn into easy money. Will lose riskier stocks by not following market trends.
Bill Nygren’s “eclectic” value manager skills have certainly paid off, considering he has over $15 billion investments under his control (http://money.cnn.com 2). His unique style and business awareness has certainly been successful as to date, building his reputation as one of the smartest stock-pickers. Using his highly-disciplined, bottom up approach to stock-picking, he evaluates potential investments carefully, making sure they
Hulme 8 hit all the targets necessary (http://www.mastersfunds.com 1). Thankfully, he was not a star athlete from youth or we may have missed out on one of the best portfolio managers of our time. After reviewing each man’s investing techniques, I had difficulty deciding between Warren Buffet and Bill Nygren; both, stock-picking geniuses of their time. Initially, I chose Warren Buffet’s style because he is the second richest man alive, as well as being an icon since his first investment in Berkshire Hathaway; however, something about Bill Nygren really stood out to me. Nygren seems very calculating and appreciative of the statistical side of portfolio management. That instinctively drew me into learning more about his style and technique of choosing a successful stock. Because he uses targets and specific percentages on when he wants to buy/sell a stock, his overall ability to be patient, as well as, modest really impressed me. He did not go after the “hot” stock that was promising a return worth twice its value, yet was extremely risky. Rather, he went after the safer stock that was solid and had growth potential. Also, he evaluates a stock by not only its standard price-to-earnings ratio, but by considering the industry it is in and what type of growth that may offer (http://money.cnn.com 2, 3). Instead, of hoping for a big return and taking a major risk, he almost always goes for the safe stock, which offers a fairly consistent return. This works for him because he has many “safe” stocks, which offer many “fairly consistent” returns. By strictly abiding by this particular style, he has done extremely well over the last ten years; hopefully, doing even better in the years ahead. Overall, he appeals to me because his investment style is very specific in what type of stocks he is looking for, and he is smart enough to wait for those stocks to emerge before
Hulme 9 abandoning his fundamentals that have made him who he is today, one of the most successful stock-pickers of all time.
Hulme 10 Works Cited http://money.cnn.com/2000/05/30/mutualfunds/q_funds_nygren/ http://www.askmen.com/men/business_politics/43_warren_buffett.html http://www.mastersfunds.com/value/managers/nygren.asp http://www.mikemilken.com/biography.taf http://www.mikemilken.com/fincareer.taf http://www.salon.com/people/bc/1999/08/31/buffett/