Ask the very best minds in American finance the most important things they've learned in the past 20 years, and you find a surprising unanimity of opinion.
My old friend Frank Cappiello, president of McCullough, Andrews and Cappiello, put it most succinctly: "Patience and humility." But he was scarcely alone.When I chatted with some of the true titans of the world of money in connection with the 20th anniversary celebrations of "Wall Street Week with Louis Rukeyser," I was struck as much by what they didn't say as what they did.
No mention of "hot tips" or "exciting chart patterns" or "waves and cycles" or "deals and rumors" - the stuff that dominates too much of what passes for coverage of the financial scene these days, and leaves the typical outsider with the sour feeling that he or she is merely an unfortunate spectator at a high-priced con game.
Virtually without exception, the fellows who have lasted for more than Andy Warhol's fabled 15 minutes in the sun are acutely aware of their own limitations - and do not pretend to make anyone, least of all themselves, rich between now and the expiration of your newsletter subscription.
Take Peter Lynch, who retired at the top this past June after leading Fidelity Magellan to the best record of any mutual fund over the past 15 years. Not only does Lynch freely admit (as the charlatans are so loath to do) that his batting average is well below a thousand, but he confesses that his ability to call next week's, or even next year's, markets is somewhere south of nonexistent.
"My best stocks have been in the third year, the fourth year, the fifth year I've owned them," Lynch told me. "It's not the third week, the fourth week. People want the money very rapidly; it doesn't happen that way, and those who think it will are going to be very disappointed in the stock market."
Similarly, when I asked John Templeton, whose Templeton Funds have pioneered in finding bargains all over the world, whether he still held his stocks for an average of five years, he answered frankly: "Yes, Louis; we don't intend to hold them five years, but we find if you buy things when they are terribly unpopular and depressed, they don't suddenly come back. You have to be patient."
What we find here, as we listen to such common-sense counsel, is the difference between a philosophy and a gimmick. The way most ordinary people make money in the stock market is the same way these extraordinary people have done it: by finding quality companies, buying them at reasonable prices and then holding them through the hysterical fluctuations of the marketplace.
How do you find them? Again, there is a strong undercurrent of agreement among the authentic virtuosos: you have to do your homework. It can certainly be valuable to hear the suggestions of those with good track records, but that has to be the start of your research, not the end.
This needn't be a full-time job; Lynch thinks "half an hour's work" would usually suffice for investors: "They would first of all see if the company has sales and profits. A lot of times they buy companies, there's nothing there. There's literally nothing there." (Not a bad thing to remember the next time you're tempted to rush out and bet the rent money on a cocktail-party tip.)
Another thing on which the giants concur is that the last thing you should want to know about a stock is that it's currently "hot." As Templeton observed, "The time when an asset is selling at its best bargain price is when most people are trying to sell. If you wait until you're through the tunnel and out into the sunshine, you'll have to pay a premium price."
Characteristically, then, Templeton thinks the prevailing pessimism about our overall economic future - which this fall reached the highest levels he can recall in his 50 years in the business - shows that we have to be "somewhere near the bottom" and that wise investors will be acting on that premise. For the humble and the patient, that could turn out to be one of the best, genuine investment tips of the next 20 years.