David Einhorn is famed Wall Street investor who runs a hedge fund known as Greenlight Capital. According to Forbes, Einhorn has a net worth of more than $700 million and his hedge fund has more than $4 billion in assets under management. Einhorn was not always rich as he writes in his book, Fooling some of the people all of the time. In fact, he started his hedge fund with less than $1 million, which was borrowed from some of his family members. He was 29 years old when he started the fund. This article will highlight the best investment strategies for beginners using his record.
The most important thing you should do as a beginner is to start somewhere. Ideally, you should start by working at a hedge fund, bank, or any other financial institution. When you do this, you will gain experience by learning from other people who have been in the investment world for more years. In his book, Einhorn writes that most of the investment things he knows today were learned during his time at Siegler, Collery & Co, which was a hedge fund. If you dream of becoming a successful money manager one day, we recommend that you start working at a financial company.
It is almost impossible for you to succeed as a money manager without reading. Most investors that you know about spend most of their time reading books, financial statements, and company filings. By reading financial books, you will be at a great position to understand market cycles, how the financial market works, and develop your own investment strategy. There are so many books out there but we recommend that you read the following.
- The Intelligent Investor – Benjamin Graham
- One Up on Wall Street – Peter Lynch
- Octopus – Guy Lawson
- Common Sense on Mutual Funds – Jack Bogle
- The Essays of Warren Buffett – Warren Buffett
- When Genius Failed – Roger Lowenstein
- Fooling Some of the People all of the Time – David Einhorn
Diversify Your Investments
Now that you know something about investment, we recommend that you diversify your holdings. A diversified portfolio is an investment strategy for both beginners as experienced investors. It simply means buying and holding a number of financial assets at the time. The benefit of doing this is that you will have a likelihood of making money when some assets price fall. If you are a stocks investor, we recommend that you diversify as follows.
- Diversify across the industries. For example, your portfolio could have companies in the technology, consumer staples, consumer discretionary, and telecoms.
- Diversify across the different company sizes. In this, you should have a collection of small, medium, large, and mega cap companies.
- Diversify across company stages. In this, your portfolio should have growth, value, and income companies. In addition to stocks, you should ensure that you are diversified across the multiple financial assets.
In this, your portfolio should have the following financial instruments:
- Bonds. You should own government, corporate, and municipal bonds.
- Real estate. In this, you can invest in REITs and also in peer-to-peer and crowdsourced real estate products like RealtyMogul, Fundrise, and PeerStreet.
- Peer-to-peer lending. This is where you lend money to people and companies using platforms like Lending Club and Upstart.
- Cryptocurrencies. This should form a small part of your portfolio because of the volatility of the industry.
- Index Funds ETFs. These are diversified assets that track multiple stocks and bonds.
- Robo-Advisors. These are companies like Betterment and Wealthfront that use technology to invest in a mix of financial assets.
- Commodities. A small portion of your investment should be in commodities like gold and crude oil. Einhorn is famous for the gold bullions he owns in a undisclosed location in New York.
Invest for the Long Term
A common mistake many new investors make is that they want to make money as fast as possible. As such, they want to be day traders. While some people have made a fortune as day traders, most of those who try to do it fail in the long term. Ideally, you should only invest in companies or financial assets that you are comfortable owning for a long time. For example, an investor like Warren Buffett has been an investor in a company like Coca Cola for more than 30 years (see also his full portfolio. However, you should always be open to changing your mind when an investment thesis goes wrong. In this, a good example is Einhorn, who continued to hold stocks of a solar company called Sun Edison until it went bankrupt.
Always Be Prepared to Make Mistakes
All investors, including the best-known of them make mistakes. Recently, Warren Buffet has lost billions of dollars by investing in Kraft Heinz, which has lost more than 50% of its value this year. David Einhorn lost millions of dollars when Sun Edison went bankrupt. Bill Ackman lost more than $4 billion when his investment in Valeant Pharmaceuticals fell from $250 to $10. Therefore, if these investment geniuses can lose money, who are you not to lose?
As a beginner, your investment journey is just starting. If you follow the investment strategies for beginners explained in this article, you will make it. As you start, remember to read more about the market, to diversify, to be patient, and to invest for the long term. Also, you should always be prepared to make investing mistakes.