“There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.” — John Kenneth Galbraith
Who are the greatest investors of all time?
An investment manager from Australia recently asked ChatGPT to name the top 10. The AI responded with the list below, which the manager then posted to LinkedIn. It prompted a lively discussion.
I was intrigued by both the question and ChatGPT’s response. I’d just finished the manuscript for Investing in U.S. Financial History, and so many legendary investors were on my mind. While ChatGPT’s list was not terrible, it included four individuals who I believe were undeserving and excluded several more who were very much worthy.
So where did ChatGPT go wrong?
There were four problems in my view. First, by only including US men with 20th- and 21st-century track records, ChatGPT displayed three biases: nationality, gender, and recency. It also did not explain its selection criteria. In fairness, the investment manager did not ask for ChatGPT’s rationale, but the lack of transparency still presented a problem.
|ChatGPT’s List of the Greatest Investors|
|1. Warren Buffett|
|2. Peter Lynch|
|3. Benjamin Graham|
|4. George Soros|
|5. Ray Dalio|
|6. Jim Simons|
|7. Philip Fisher|
|8. John Paulson|
|9. Charlie Munger|
|10. Jesse Livermore|
The absence of standard criteria got me thinking about the fundamental factors that differentiate the best investors of all time. To my mind, the first criterion must be the duration of the individual’s investment track record. Given the ruthless and ever-increasing efficiency of securities markets, only investors with persistent success over an extended period warrant consideration. Further, to ensure that skill rather than luck drove that outperformance, they ought to have excelled in different market environments. A track record that depended upon a few windfalls is not enough to qualify.
This initial screen disqualifies Jesse Livermore, John Paulson, and Peter Lynch. Livermore’s career ended in bankruptcy in the wake of the Great Crash of 1929. Paulson made billions in the global financial crisis (GFC) but has had mixed results since. Lynch’s heyday lasted only 13 years or so, and his strategy benefited from a strong tailwind thanks to prevailing market forces of the day. Finally, I had to exclude Philip Fisher. While my knowledge of Fisher’s techniques is more limited, his name struck me as the least compelling left on the list, and room had to be made for J. Pierpont Morgan.
Timeless Investing Virtues
So, why have the other individuals identified by ChatGPT earned their positions? And who should occupy the three spots that are still open after the addition of Morgan?
I selected individuals based on the assumption that great investing depends on four key premises. The first is that the only way for investors to achieve sustained outperformance relative to the market and their peers is if they have a unique ability to uncover material facts that are almost completely unknown to everybody else. Second, once such investors act on these facts, they must often hold unpopular positions for a long time before they realize a profit. Third, they must sustain their competitive advantage as markets evolve. Finally, the rarest talent among the greatest investors is creating a legacy and passing their talents on to the next generation.
The best investors in US history all meet the first three requirements, but only a very select few have achieved the fourth.
What follows are my revisions to ChatGPT’s rankings. The brief summary of each investor’s qualifications is also accompanied by a distinct virtue in which they excelled. An important caveat is that the proposed revisions to ChatGPT’s selections suffer from some of the same limitations: They are US-centric and overwhelmingly male. For this reason, this is more a list of the best investors in “US history.” Nevertheless, this list helps explain why truly exceptional investors are such rarities.
1. Discovering Hidden Truths
The wisdom of crowds is the most underappreciated principle in investing. It explains why securities markets are so unforgiving and why just about all investors should stick with traditional asset classes and index the vast majority of their portfolio. Still, some individuals do outperform market indexes and peers by uncovering truths that are overlooked by almost everybody else. Virtues that assist them in this effort include skepticism, persistence, and creativity.
Charlie Munger: Skepticism
“Invert, always invert: Turn a situation or problem upside down. Look at it backwards.” — Charlie Munger
Unearthing valuable, unseen facts is only possible when we question conventional thinking. Charlie Munger elevates this quality to an art form by using the practice of inversion. His 13 June 1986 commencement address at the Harvard School in Los Angeles demonstrates this. Rather than advise graduates on how to achieve success, Munger turned things upside down and discussed what vices they could embrace if they wanted to live a miserable life. He suggested being unreliable in relationships, refusing to learn from the mistakes of others, and always giving up in the face of adversity. Rather than tell the graduates what to do, he told them what not to do.
Munger applies the same inversion techniques in his evaluation of investments and credits many of his best decisions to his willingness to examine problems from an unconventional perspective.
Recommended Reading: Poor Charlie’s Almanack by Charlie Munger
Ray Dalio: Persistence
“There is almost always a good path that you just haven’t figured out yet, so look for it until you find it rather than settle for the choice that is then apparent to you.” — Ray Dalio
Former Bridgewater Associates CIO Ray Dalio generated consistent outperformance over nearly three decades, a feat even more impressive when adjusted for risk and fees. Core to Dalio’s achievements was his relentless and often painful pursuit of truth.
This forced Bridgewater’s investment teams to confront uncomfortable but critical realities about economies, markets, and themselves. In his bestselling book, Principles, Dalio discusses how Bridgewater’s dogged investigations helped the firm identify and exploit scarce mispricing opportunities and market dislocations. This commitment to discovering reality is both rare and essential. Most investors prefer to believe what they want to be true rather than what is.
Recommended Reading: Principles by Ray Dalio
Jim Simons: Creativity
“I don’t know why the planets orbit the sun . . . That doesn’t mean I can’t predict them.” — Jim Simons
Renaissance Technologies founder Jim Simons has meticulously searched for small market inefficiencies that are hidden in the plumbing of securities markets and devised strategies to profit from them. His team has created a complex, technological infrastructure to identify and exploit these inefficiencies — often for reasons that even they don’t understand.
With such a limited opportunity set, Renaissance eventually accumulated more capital than it could deploy. Its flagship Medallion Fund now consists largely of the fund’s own capital and functions more like a mint than an investment fund. As of 2018, Medallion had returned an astounding 39.1% net of fees over a 30-year period. Few investors would ever dream of replicating Renaissance’s performance, which is what makes Simons the archetype of investment creativity.
Recommended Reading: The Man Who Solved the Market by Gregory Zuckerman
In 1928, Merrill Lynch founder Charles E. Merrill concluded that US stock valuations no longer reflected reality. He encouraged his partners and clients to exit the market nearly a year before its 1929 peak. He endured relentless ridicule, came to question his own sanity, and even sought psychiatric treatment. Yet he was right.
The challenge for great investors is that, by definition, they must hold unpopular positions that most believe are wrong or even foolish. The next set of virtues helps these investors maintain their positions despite the constant pressure to abandon them.
Warren Buffett: Patience
“The stock market is a device for transferring money from the impatient to the patient.” — Warren Buffett
Successful investing is often more like watching paint dry than hitting the jackpot on a slot machine. Those who outperform over the long run understand that it takes time for the market to accept the truths that they’ve discovered. New fads come and go. Bubbles inflate and burst. Undervalued assets may stay undervalued for decades, while overvalued assets often grow more expensive before collapsing. Warren Buffett has always appreciated the importance of patience. He cares little for the daily or even annual market noise and calmly waits for his investments to compound.
Recommended Reading: The Essays of Warren Buffett by Lawrence A. Cunningham and Warren Buffett
Henrietta “Hetty” Green: Thrift
“I smoke four-cent cigars and I like them. If I were to smoke better ones, I might lose my taste for the cheap ones that I now find quite satisfactory.” — Edward Robinson, Hetty Green’s father
Hetty Green may be the most underrated and misunderstood investor in US history. Her legendary thrift was one of her many virtues, but few appreciated how it contributed to her success. She rented modest rooms in boarding houses in Brooklyn, New York, and Hoboken, New Jersey, for most of her life, and her business headquarters consisted only of an unreserved rolltop desk at Chemical Bank. Such frugality helped her persevere through the frequent Wall Street panics that ruined many of her contemporaries. The best investors appreciate the value of thrift because it helps them hold positions during times of financial distress and profit from exceptional opportunities when capital is otherwise in short supply.
Recommended Reading: “The Story of Hetty Green: America’s First Value Investor and Financial Grandmaster” by Mark J. Higgins, CFA, CFP
George Soros: Resilience
“If I had to sum up my practical skills, I would use one word: survival.” — George Soros
George Soros secured his place in the investment hall of fame in the early 1990s when he bet that the Bank of England lacked the foreign currency reserves to maintain the value of the pound sterling. It was a risky wager that exposed him to potentially painful losses.
Many of the investors on this list avoid such gambles, but those that embrace them test the depths of their resilience. Sound investments often produce early losses, and investors who lack the requisite fortitude are prone to exit their positions prematurely. Soros’s resilience was tested many times during his forays into currency markets, yet he refused to abandon sound investments until he reaped the rewards.
Recommended Reading: The Vandals’ Crown by Gregory J. Millman
3. Preservation of Competitive Advantages
The irony of the investment industry is that the more an investor brags about their talent, the less likely they are to have any. Why? Because true competitive advantages often evaporate once they are no longer a secret. Once discovered, the market arbitrages it out of existence. This makes discretion a key attribute.
Benevolence and integrity are two others that may seem like a strange fit under this header, but they are important because even the best investors suffer periodic failures. Those who care little for ethical standards or the wellbeing of society are less likely to receive assistance from those who could rescue them. For this reason, these are necessary qualities.
Jay Gould: Discretion
“Never tell anyone what you are going to do till you’ve done it.” — attributed to Cornelius “The Commodore” Vanderbilt
Jay Gould’s extraordinary skills were offset by his ethical shortfalls. In the late 1800s, few laws governed the behavior of stock operators and corporate owners, and Gould took advantage of the regulatory void and circumvented the few regulations that existed through various loopholes. He orchestrated many of Wall Street’s most memorable Gilded Age conquests through dishonest and unscrupulous means.
But in an era when boasting was expected on Wall Street, Gould was notoriously discrete. Most who fell prey to his schemes had no clue that they were targets, much less that Gould was pulling the strings. He remains an enigma to this day because he kept his thoughts to himself.
Recommended Reading: Jay Gould, His Business Career by Julius Grodinsky
J. Pierpont Morgan: Integrity
“The first thing is character. Before money or anything else. Money cannot buy it. A man I do not trust could not get money from me on all the bonds in Christendom.” — J. Pierpont Morgan
During the Gilded Age, the trading volume on Wall Street grew rapidly, but with little regulation, Gould and others could profit from bad behavior. Stock operators routinely abused investors through elaborate market manipulation schemes and insider trading. But J. Pierpont Morgan restrained many of the worst abuses when he emerged as Wall Street’s de factor leader in the 1890s.
Morgan had his flaws, but during desperate times, he consistently placed the interests of clients and country above his own. His integrity generated returns for his businesses, and trust in the Morgan name sustained his competitive advantage as an investor and financier. J. Pierpont Morgan’s inclusion on this list often prompts objections. But given the lawlessness in securities markets prior to his arrival, his integrity stands out.
Recommended Reading: The Panic of 1907 by Robert F. Bruner and Sean D. Carr
Benjamin Graham: Benevolence
“The chief burden on my mind [during the Great Depression] was not so much the shrinkage of my fortune as the lengthy attrition . . . Add to this the realization that I was responsible for the fortunes of many relatives and friends . . . ” — Benjamin Graham
The father of value investing, Benjamin Graham explained his techniques in his two classic books, Security Analysis and The Intelligent Investor. While his investment accomplishments were exceptional, his strong moral compass distinguished him even further. During the early 1930s, Graham’s first investment fund nearly failed, but what concerned him most was how it would impact the lives of his investors. He used his own capital to maintain the dividend payments that they had come to rely on. The goodwill this created helped him weather the storm and recover and prosper when the Depression subsided.
Placing the interests of clients above one’s own is an easy discipline to abandon in difficult times — and even the best investors experience hardships eventually. Graham’s refusal to compromise his principles demonstrates how such a quality is both a moral virtue and strategic asset.
Recommended Reading: The Memoirs of the Dean of Wall Street by Benjamin Graham and Seymour Chatman
4. Perpetuating Success
The United States emerged from World War II with two-thirds of the global supply of gold and the only industrial infrastructure still intact. Over the next several decades, institutions used this advantage to amass substantial wealth, and their trustees became influential allocators of capital. This created an entirely new challenge for investors. Pension funds, endowments, and foundations were expected to exist in perpetuity, which required extending their competitive advantages beyond the lifespan of those who created them. The last of the 10 greatest investors in US history mastered this. David Swensen’s success is often attributed to his expert investing in alternative asset classes. But what truly set him apart were his gifts as a teacher and mentor.
David Swensen: Mentorship
“I realize that the real secret ingredient was not just David’s conceptual framework for the investment endowment portfolios, but vitally, his extraordinary investment in people. The Yale Model needs highly intelligent, committed, and selfless team players to excel. David’s investment in people — that is the secret sauce!” — Dean Takahashi
The Yale University Endowment represents institutional investing’s gold standard. From 1987 to 2021, it returned approximately 13% per year compared with only 8.2% for the median endowment. Ever since Swensen wrote Pioneering Portfolio Management, institutional investors have sought to replicate his performance, but few have come close. Why? For one thing, few understand the source of Yale’s competitive advantage. They assume that allocating to venture capital, buyout funds, hedge funds, and other alternative assets is all they need to do.
This view is overly simplistic and inaccurate. Swensen’s ability to mold and inspire great investors was the real differentiator. On 10 April 2022, Yale University held a memorial service honoring Swensen’s legacy, and his colleague Dean Takahashi reviewed the performance records of eight Yale-pedigreed CIOs who had track records of at least 10 years. All eight ranked in the top decile relative to other endowments. The odds of this occurring randomly are 1 in 100 million. It is a rare feat to achieve investing excellence across one generation, but to perpetuate that success by passing the skills on to future generations is the rarest of all gifts and earns Swensen a special place in the pantheon of US investors.
Recommended Reading: “Yale University Endowment Report 2020“
A Revised List of the Top US Investors
|My List of the Greatest Investors|
|1. Hetty Green: Thrift|
|2. Warren Buffett: Patience|
|3. Charlie Munger: Skepticism|
|4. Jim Simons: Creativity|
|5. David Swensen: Mentorship|
|6. Benjamin Graham: Benevolence|
|7. George Soros: Resilience|
|8. J. Pierpont Morgan: Integrity|
|9. Ray Dalio: Persistence|
|10. Jay Gould: Discretion|
So, the question remains, who are the greatest investors in US history and how should they be ranked? The answer is subjective to some degree, but what’s more important than the names themselves is the timeless qualities that made them great.
If I had to vote for the absolute best, Hetty Green would be my choice. Not only did she exhibit all 10 virtues, but she also topped several categories and succeeded at a time when the deck was stacked against her. Her exceptional track record is also complete, while several competitors on this list still have time to make some fatal errors.
I have relatively weak conviction in the precise order beyond Green at the top and Gould at the bottom, but the table is my ranking of the greatest investors in US history.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
Image courtesy of Nick Webb. This file is licensed under the Creative Commons Attribution 2.0 Generic license. Cropped.
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