If you open a newspaper and read about people who’ve made millions investing in hedge funds or private equity investments, you might think it takes a complicated investment strategy to make money in the market.
But that’s not always the case. In fact, there are several famous investors who became very rich by following some truly simple rules—rules that are easy for anyone to follow.
Benjamin Graham is one of the earlier and more famous investing minds of the 20th century. His investment philosophy can be summed up with the following quote, pulled from his most famous book, The Intelligent Investor: “The real money in investment will have to be made—as most of it has been in the past—not out of buying and selling but of owning and holding securities, receiving interest and dividends and increases in value.” Graham’s point, articulated so long ago, is still relevant today. It touches on active vs. passive management, staying in the market for the long term, and owning a wide variety of stocks—the essence of diversification.
Graham had a clear preference for value investing and often gave advice about how investors might screen for stocks. One of his main tenets was to seek out companies with a margin of safety. To Graham, the margin of safety was basically the difference between a stock’s current price and its intrinsic value. If a stock had a large margin of safety, he believed, it might be more resilient to market downturns. Graham prioritized income generation over growth in stock price and believed piling into a stock based on its future growth prospects wasn’t a reliable strategy.
At the time Graham did his research—the 1930s through 1960s—the index fund hadn’t yet been invented. However, Jack Bogle (discussed below) notes in the foreword to Graham’s book that Graham comes close to describing the modern-day stock index fund through his many writings on buy-and-hold investing and advice to seek out “unimaginative and conservative forms of investment.”
Warren Buffett is a disciple of Benjamin Graham and similarly value-minded. Buffett is still around, running his company, Berkshire Hathaway, and he remains arguably the most famous—and certainly one of the richest—value investors of all time. Buffett offers up his pearls of wisdom often, and what is so remarkable about Buffett is how obvious and simple his advice can be: avoid investments you don’t understand, invest early and often, and buy stocks when their prices fall. Again, nothing about that advice is complicated, and it can seem more like an exercise of discipline than anything else.
Here’s another example of Warren Buffett’s simplicity when it comes to investing advice: Recently, he was asked to advise wealthy NBA star LeBron James on his investment strategy. Buffett told James that a good strategy would entail making monthly investments into a low-cost index fund. He went on to say that "owning a piece of America, a diversified piece, bought over time, held for 30 or 40 years, it's bound to do well. The income will go up over the years, and there's really nothing to worry about."
Buffett has been a master of buying stocks over time when their prices are temporarily depressed. He has followed much of Graham’s advice and steered clear of buying companies in speculative spaces such as emerging technology. In fact, Buffett is known for having avoided the disastrous consequences of the dot-com bubble by sticking to his own rules, even as other investors piled into technology.
Jack Bogle is the visionary investor who invented the first index fund in the 1970s. He created the fund, which tracks the performance of the S&P 500 Index, because he believed that owning a low-cost index fund that mirrors the market would be a much better investment strategy than trading in and out of stocks and trying to pick winners and losers. Needless to say, he was right. If you stack up the performance of simple index investments vs. actively managed mutual funds over the past few years, the numbers speak for themselves.
Bogle’s investing rules have a similar theme to those of Graham and Buffett. In a recent interview with Time online, Bogle emphasized his belief that low expense ratios and broad diversification are the two most important rules for successful investing.
Keep It Simple
These famous investors certainly have a few habits in common. For one, they understand the need to remove emotion from your investing strategy and instead utilize a routine, systematic approach. They also emphasize the importance of low costs and remaining broadly diversified. So if you want to invest more like these pros, consider paying less attention to the daily noise in the market, set your investment portfolio on auto-pilot, and stay in it for the long run.
 Graham, Benjamin: The Intelligent Investor: 1949
 Bogle, Jack: The Intelligent Investor: Updated with Foreword: 2005
 Imbert, Fred: Warren Buffett’s Advice to LeBron James: www.cnbc.com: March, 2015
 Woodruff, Mandi: It’s Getting Harder to Deny the Power of the Index Fund: Business Insider: June, 2013
 Regnier, Pat: Jack Bogle Explains How The Index Fund Won With Investors: www.time.com July, 2015