Lessons from the Soros and Buffett master class

A successful investor himself, empowered by the compounding effects of low taxes in his home Hong Kong, Mark Tier presents a lucid and understandable review of the investment techniques practiced by Warren Buffett, George Soros and some other leading investors.

Most of this is ground that has been covered before by investment tomes. But this is almost a text book with easy to follow notation and avoids jargon. Indeed, much jargon is explained in simple though not simplistic terms.

However, where Mr. Tier has achieved new insight into the techniques of the master investors is in refining their investment habits down to 23 rules of the game. Anybody could gain from adopting these principles and getting these basic tenants right is essential to profitable investing.

Preserve capital

Rule number one is to preserve your capital and consequently be highly risk adverse. The trick is to invest in situations where the actual risk is much lower than the generally perceived risk, almost the definition of a good investment position.

Keeping transaction costs and taxes low is also a first principle. Over time capital compounds its gains, and the more capital is retained the bigger the compound gains over time. So squeezing an extra percentage point rolls up into serious money, and is not just a matter of being a tight wad.

Both Buffett and Soros dislike diversification and concentrate on getting a few investments really right rather than spreading money around to lower risk. And at the same time they only invest in positions that they can fully understand, and keep continually looking for new options.

Once they find such an option, generally an under priced asset, they are prepared to buy as much as they can to maximize the final rewards. They also keep their mouths shut about what they are doing and learn from their mistakes rather than keep repeating them.

Debt averse

In addition, successful investors are committed folk and focus on what they are doing. And they have a habit of living below their means and keeping out of debt. As Mr. Tier notes saving results in the compounding of gains over a lifetime, while debt works in exactly the reverse way.

That is not to say that master investors will not use leverage in their strategies to amplify results, but it is used as part of an investment system and not to finance general consumption.

Mr. Tier refers to an anonymous investor in Hong Kong who follows all 23 habits and has developed an investment strategy in gold mining stocks and plans to diversify into energy shares.

It is clear the trick is to be disciplined in your approach, and have an exit strategy at the time you buy. If only this was more easily done than said!