Inside the strategy of Soros and Buffett
Six years ago he adopted the investment habits of Warren Buffett and George Soros - arguably the world's most successful investors. Since then, he has sold his business interests and now lives solely on the proceeds of his investments - on average 24.4 per cent per annum.
The Australian businessman, who lives in Hong Kong "partly because paying taxes is against my religion", has chronicled the mental habits that made Buffett and Soros the world's richest investors - and allowed him to give up the rat-race.
In The Winning Investment Habits of Warren Buffett and George Soros, newly- published by Kogan Page, Tier compares the strategies of the two investors.
Buffett, born in 1930, started managing funds in 1956 and has produced an annual compound rate of return of 24.7 per cent. The American has had just one "losing" year - 2001 - compared with 13 years of negative returns for the Standard & Poor's 500 index in the period.
Soros was born the same year as Buffett, in Budapest, Hungary, and began the Quantum Fund in 1969. Since then, he has enjoyed an average annual rate of return of 28.6 per cent and has had just four losing years against nine for the S&P 500.
While they have both delivered stellar performances, their strategies seem to be polar opposites: Buffett buys bargain-priced stocks and business for cash - and likes to own them "forever"; Soros is renowned for his highly levelled, quick-footed bets in the currency markets.
"No two investors could seem more different," says Tier. "Their investment methods are as opposite as night and day.
"On the rare occasions when they bought the same investment, it was for very different reasons."
Although, on the face of it, they have little in common, Tier demonstrates that both practice the same mental habits and strategies.
"As I analysed their thinking, how they come to their decisions, and even their beliefs, I found an amazing correspondence," Tier says.
"Buffett and Soros share the same beliefs about the nature of the markets: when they invest, they're not focused on the profits they expect to make.
"Indeed, they're not investing for the money. Both are far more focused on not losing money than on making it."
Tier outlines their 23 "winning" investment habits - tactics and strategies that he believes other investors can learn from, though he claims that his work is no "get-rich-quick" book.
Many of these "habits" seem to fly in the face of conventional Wall Street wisdom: for example, Buffett and Soros do not diversify. And when they buy, they always buy as much as they can.
Both will say that making predictions about the market or economy has virtually nothing to do with investment success.
"Adopt these habits and your investment returns will soar," Tier says.
• The Winning Investment Habits of Warren Buffett and George Soros, ISBN 0-7494-4503-3, retails at 14.99. Readers can receive a 20 per cent discount on the cover price by logging on to www.kogan-page.co.uk and entering the code MF186. The Scotsman has four copies to give away to the first readers to e-mail [email protected].
A master investor:
1 Believes the first priority is preservation of capital.
2 As a result, is risk-averse.
3 Has developed his own investment philosophy, which is an expression of his personality. As a result, no two highly successful investors have the same approach.
4 Has developed his own personal system for selecting, buying and selling investments.
5 Believes diversification is for the birds.
6 Hates to pay taxes, and arranges his affairs to legally minimise his tax bill.
7 Only invests in what he understands.
8 Refuses to make investments that do not meet his criteria. Can effortlessly say 'no'.
9 Is continually searching for new investment opportunities that meet his criteria and actively engages in his own research.
10 Has the patience to wait until he finds the right investment.
11 Acts instantly when he has made a decision.
12 Holds a winning investment until a pre-determined reason to exit arrives.
13 Follows his own system religiously.
14 Is aware of his own fallibility. Corrects mistakes the moment they arise.
15 Always treats mistakes as learning experiences.
16 As his experience increases, so do his returns.
17 Almost never talks to anyone about what he's doing. Not interested in what others think of his investment decisions.
18 Has successfully delegated most, if not all, of his responsibilities to others.
19 Lives far below his means.
20 Does what he does for stimulation and self-fulfilment - not for money.
21 Is emotionally involved with the process of investing; but can walk away from any individual investment.
22 Lives and breathes investing, 24 hours a day.
23 Puts his money where his mouth is. For example, Warren Buffet has 99 per cent of his net worth in shares of Berkshire Hathaway; George Soros, similarly, keeps most of his money in his Quantum Fund. For both, the destiny of their personal wealth is identical to that of the people who have entrusted money to their management.