Billionaire Lessons from Buffett, Walton & Turner

Remember the Internet when it was young back in 2000?

This was during the forum and message board heyday, when your parents and grandparents didn’t even have an email address. This also happens to be an inflection point for retail investors.

For the first time in history, the average person finally had access to the same info as Wall Street analysts.

It was during this time that Wall Street, the SEC and regular investors just like us were having a tough time trying to deal with securities laws that were not equipped for the good old days of the Yahoo! Finance message boards. In this previous world, Jonathan Lebed, 15-year-old investor, logged on and began to first day trade stocks.

He had a brokerage account opened by his mother, and used it to build positions in microcap stocks. Then he went to the message boards and hyped those same stocks.

Just like a younger version of the Wolf of Wall Street, Lebed managed to trade all the way to nearly $1 million before the SEC stepped in and got involved.

The story is filled with conundrums. Is the trading world really set up for the pros to prosper on Wall Street? When does an anonymous 15-year-old message board poster turn into a master manipulator of the markets?

13 years ago this month, New York Times posted an article in February 2001, discussing the absurdity and complexity of online day trading yesterday and today:

By the Spring of 1998, Jonathan was 13, and his ambitions were growing. He had glimpsed the essential truth of the market: that even people who called themselves professionals are often incapable of independent thought and that most people, though obsessed with money, have little ability to make decisions about it. He knew what he was doing, or thought he did. He had learned to find everything he wanted to know about a company on the Internet; what he couldn’t find, he ran down in the flesh. It became part of Connie Lebed’s life to drive her son to various corporate headquarters to make sure they existed. He also persuaded her to open an account with Ameritrade. ”He’d done so well with the stock contest, I figured, Let’s see what he can do,” Connie said.

Be an Investing in Business Predator

Billionaire investor Warren Buffett encourages individual investors to buy into low-cost index funds with high diversified stock exposure. This is a long-term strategy, and it seems pretty smart. Plus, it’s coming directly from the mouth of the Oracle of Omaha!

Buffett himself does not quite follow this exact approach.

His overall success came because he heavily invested in a small group of companies and held onto those stocks forever. If you take a look at the latest Berkshire Hathaway holdings as proof, you’ll see that it doesn’t quite compare to the S&P 500.

Billionaire Ted Turner did not diversify at all while building what eventually became Time Warner Cable and Time Warner. Same goes for Giovanni Agnelli, the founder of Fiat; John Paulson, hedge fund billionaire; Sam Walton, Walmart founder, and many other very successful tycoons, investors and business owners.

But the lack in diversity among the successful people does not mean to imply that you should take serious risks. As a matter of fact, according to a Malcolm Gladwell article in a 2010 The New Yorker issue, these stories of success are often characterized by a tremendous lack of risk. This is a serious lesson worth its salt for small and large investors alike:

The entrepreneur has access to that deal by virtue of occupying a “structural hole,” a niche that gives him a unique perspective on a particular market. Villette and Vuillermot go on, “The businessman looks for partners to a transaction who do not have the same definition as he of the value of the goods exchanged, that is, who undervalue what they sell to him or overvalue what they buy from him in comparison to his own evaluation.” He moves decisively. He repeats the good deal over and over again, until the opportunity closes, and — most crucially — his focus throughout that sequence is on hedging his bets and minimizing his chances of failure. The truly successful businessman, in Villette and Vuillermot’s telling, is anything but a risk-taker. He is a predator, and predators seek to incur the least risk possible while hunting.

And the Takeaway is?

The two pieces of the puzzle presented provide serious insight as to what’s necessary to become a successful investor. First off, the short-term, day trading investing style is a game rigged for you to fail as a retail investor. That system was created to eat up all of your returns with commissions and fees, plus the short-term market movements aren’t based on real business prospects and analyses, but more like the market forces that you have no control over and cannot predict.

To be a true predator, and to really win the game of money in business, you have to play on a level playing field. You have to take the time to research your investments, understand a company’s future prospects and their fundamentals. When you truly find a special, undervalued company ready for long-term success, you should pounce. You have found your prey, so be the predator that you are.