Investing's Smartest Players

What drives the success of the "big brains" of the investing worldand what ordinary investors can learn from them

What separates the billionaire investors from the millionaires? What do the world's investing geniuses have that the rest of us don't? Besides good luck and a pile of money, that is.

When we came up with a list of the biggest brains in investing, we noticed how much each of them has influenced the way the world invests. And we noticed one other trait: Each saw opportunity well before the pack. John Templeton pushed international investing way before it was cool. Warren Buffett was buying up undervalued companies long before his brand of value investing became popular. David Shaw used high technology and smart PhDs to make money on countless split-second trades, now a common hedge fund strategy.

Many of the world's top investors got to the top by being first. They didn't follow in the footsteps of others or copy wholesale the investing styles of others. At the beginning of their careers, "they set themselves apart from the crowd," says Walter Gerasimowicz, chairman and CEO of Meditron Asset Management.

Often Misunderstood by the Market

Standing out like that can require a lot of courage, especially on financial markets that, by their very nature, represent the epitome of the herd mentality. John Merrill, chief investment officer of Tanglewood Capital Management, calls this trait "intellectual integrity." Top investors "think for themselves. They defy conventionalism," Merrill says.

Perhaps this is why any list of the world's top investors represents a vast array of political beliefs, personality quirks, and strange hobbies. While some keep a low profile, people like Buffett and bond king Bill Gross seem to love regaling others with their views.

Sometimes top investors' quirks can make the rest of the market doubt their judgment. "They're out of sync with markets very often," Merrill says. The big brains adroitly zig where the herd zags. Look at mutual fund manager Ken Heebner, who bought housing stocks when they were out of style and then sold them at their peak in popularity, just before the housing market showed signs of weakness. Or John Bogle, who angered many on Wall Street by criticizing high mutual fund fees. Carl Icahn has earned the ire of CEOs, corporate boards, and even some fellow shareholders for his aggressive methods as a corporate raider.

Thinking for the Long Term

Another common trait: Most of the top investors, though not all, think long term. They have a confident belief in what their investments ought to be worth at some point in the future, and they stick with it. "They don't get buffeted by the news or the noise," says Georges Yared, chief investment strategist at Yared Investment Research.

A long-term focus is crucial when you're being judged on your record of not just a few months or years, but decades. (We made sure that the names on our big-brain list had multidecade track records.) The flavor-of-the-month stars may peter out, barely lasting through one economic downturn.

Merrill points out that in the early 1970s, the reputation of mutual fund managers really suffered when stock markets hit a brutal bear market. Many investors lost their nest eggs, and blamed "gunslinger" mutual funds. Templeton, with his long-term focus and his emphasis on diversifying overseas, "brought respectability back to mutual funds."

The top investors usually stay active for several decades, at least. "They have been survivors of every type of economy cycle," Gerasimowicz says. They've survived economic chaos, war, and volatility.

Changing with the Times

True, not all the top investors make money by buying and holding investments. Some, like currency speculator George Soros, profit on the perfectly timed trade. But that requires being an independent thinker, too. Soros must understand conventional wisdom, but he is also willing to challenge it. He has bet billions by going against nations' central banks.

How consistent are top investors throughout their careers? Do they pick one investment philosophy and stick with it? That's harder to answer. Gerasimowicz says they do: "Everyone of these investment pioneers were successful because they operated with a coherent investment philosophy." Most important, "they applied it consistently to all aspects of their portfolio," he says. "They never wavered."

That may be true, but there's no doubt many have shifted with the times. The Buffett of 1964 is not the Buffett of 2007, even if some of his core principles are the same. Icahn has adjusted his tactics to new laws and new corporate norms.

One thing doesn't change, however: It helps to be lucky. Even the best of the best can provide a long list of investing mistakes. Sometimes even the best investors wish they could turn back the clock and undo a big blunder. But the brightest minds in investing are nothing if not adaptable, and can even use those missteps to fine-tune their future strategies. While ordinary investors may not be able to match their results, they could certainly profit by taking a page or two from the methods and approaches employed by our brain trust.

To review our list of the investing cream of the crop, click here.

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