Motley Fool Answers: The Greatest Investors of All Time

Who is the Muhammad Ali of the investing world, the unquestioned "greatest of all time?" 

It's not an easy answer when it comes to investors, but Alison Southwick and Robert Brokamp have a good time trying on this episode of Motley Fool Answers. In going through their list, the Answers team will talk about some investors you know and share some details you may never have heard. You may even learn about some investing greats you had never heard of.

The two also discuss what to do with a company pension after you leave a job. Is it best to keep it there until you retire? Should you roll it over? Or might there be other, smarter options?

A full transcript follows the video.

This podcast was recorded on August 14, 2016.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I am joined, as always, by Robert Brokamp. He's the personal finance expert... Well, not the. He's a personal finance expert here at The Motley Fool.

Robert Brokamp: No, I think the. The...

Alison: The...

Robert: ...personal finance expert...

Alison: ... at The Motley Fool. Hi!

Robert: ...at The Motley Fool.

Alison: Hi, how are you, Bro?

Robert: Just fine. How are you, Alison?

Alison: Good. I'm good, because I didn't have to carry a lot of water for this episode. You did, so let's just get into it. Today, we're going to look at the greatest investors of all time. The G-O-A-Ts, if you will. Actually, let's not, because that sounds more like a Pokemon than an honor. We'll also answer your question about whether to cash out a pension. All that, and more, on this week's episode of Motley Fool Answers.

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Alison: It's time for Answers' answers, and today's question comes from Ken. Ken writes:

My former employer still has a pension plan [from] when I worked for them, and apparently I am eligible. Recently, they offered me a lump sum payout and I'm wondering which is better: (1) wait and get the monthly checks after I retire, or (2) take the lump sum, roll it over into my IRA, and let it grow under my watchful eye. Given the math of compounding and the numbers they provided for the payouts, option two seems to be a winner; but what do you think?

Robert: Well hello, Ken. That's an interesting question. Many people have these defined benefit pensions and at some point in their lives, or their careers, they can choose to either leave the money in the pension, or take it as a lump sum.

The first thing to do would be to look at the safety of your pension. Every pension plan has an annual report. You want to know that it is mostly or fully funded. If it is a pension plan that is underfunded, that might be a reason to move the money to an IRA to get it while you still can.

Another thing to consider is, you might like that idea of what comes with a pension -- which is a check in the mail every month for the rest of your life; but you might be able to get a better deal from an insurance company through an annuity. You could take the money out, but then just buy your annuity. You just get the same benefit. It might be a higher benefit, or at least it might be with a highly rated insurer, so you feel more secure about the income.

Or you can do what you're doing -- or it sounds to me like you would like to do -- and that is move the money to the IRA and manage it yourself. And I think that is a perfectly fine alternative, especially if you are a good investor. You have a demonstrated record of managing your money well.

I did read several years ago a study that compared the returns of people who moved the money from their pension to [their IRA] accounts, and it found that people weren't managing the money so well, and that they were spending it too quickly. So you have to have a bit of self-awareness about whether that really is the best option for you. But if you've demonstrated that you are a good money manager, then taking the money and managing it yourself is a good idea.

Alison: So there you go, Ken. Take a good, hard look at your track record and figure out if you really are up to the task. We think you probably are.

Robert: I have faith in him.

Alison: There you go. Go for it.

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"Ad: This podcast is sponsored by Casper.com"

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Alison: I actually talked to one of our listeners -- Byron. He went for it. He bought a mattress for his mom. He said she loves it, and he's thinking about getting one for himself.

Robert: Well, that's good to hear.

Alison: It is good to hear. I feel good when our sponsors treat our listeners well. I have yet to hear that they've treated them poorly, but if they do, they're going to have me to deal with.

Robert: That's right.

Alison: Some harsh words.

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♫You're the best around, nothing's gonna ever keep you down. You're the best around...♫

Alison: Now that we all know the meaning of the acronym GOAT, thanks to our battle of the generations a few episodes ago, we can use it all the time, and in particular, when we're talking about the greatest of all time in investing. Bro is going to introduce us to five famous investors, and share some of the smarter things that they have said, and even some peculiar habits.

Robert: Yes. So when we decided to do this, it actually turned out to be quite a challenge to boil it down to the greatest investors of all time.

Alison: Oh, and I should say this is part one.

Robert: This is part one...

Alison: Citizens on patrol...

Robert: ...partially because I could not narrow it down to a smaller list. Some of these investors have public records, but some don't because they managed hedge funds, and those don't always disclose their returns. Sometimes, these investors started investing way back in the '30s, '40, and '50s, and the records aren't available, so it was a little difficult to narrow it down to the greatest investors. But the five we have today are definitely investors that anyone who wants to learn to be a better investor should get to know. And I'm going to start with...

Alison: No. 1.

Robert: ... John Bogle.

Alison: Jack. Jack to friends.

Robert: Jack, to friends. And that might sound a little odd, because you might think a great investor is someone who beats the market, whereas Jack Bogle is often telling people to try to match the market by doing an index fund.

Alison: The founder of Vanguard.

Robert: The founder of Vanguard.

Alison: And the creator of index funds.

Robert: Exactly. And they were not available until Vanguard came out with it. In other words, the research back then was clear that it was difficult to beat the market, but you didn't have an option to match it until the index fund came out. But that was really only just one innovation. The other innovation was that, when Jack Bogle founded Vanguard in 1975, he created the first and really only mutual -- mutual fund company. The company is owned by the funds, which are owned by the shareholders; so basically, when you invest in a Vanguard fund, you own part of the company.

Why does that matter? Because the company doesn't have a profit motive. It operates at cost. And it's key to why Vanguard can keep its costs so low. When the index fund came out, the bank that was helping launch it was hoping to raise $150 million. It only got about $11 million...

Alison: Wow!

Robert: ...and Bogle was urged to close it. In fact, it was labeled "Bogle's Folly." But he's kind of a stubborn guy, so he persevered, and now it is the biggest mutual fund in the world.

Alison: Wow! So did he not get super wealthy rich starting Vanguard?

Robert: No, because there wasn't any stock to own. It wasn't a situation like when you start a company. [One of the reasons] Bill Gates is so wealthy is because he owns Microsoft stock. Now John Bogle is doing fine. In an interview I read in 2012...

Alison: I'm sure, yes.

Robert: ...he estimated his net worth in the low eight figures, so that means like $20-30 million. That's a lot of money and he's doing fine, but nothing compared to the Jamie Dimons of the world, or any of these other titans of Wall Street.

Alison: You'd think if the company you founded is the largest money manager in the world that you would be a bajillionaire.

Robert: Right. Many of the other investors that we will discuss, today, and in the next installment, are billionaires. Jack Bogle's not a billionaire.

Alison: Just a humble millionaire.

Robert: Just a millionaire.

Alison: Trying to help the world out. So what would you say is one of the smart things that Jack Bogle said? What's a good Jack Bogle quote?

Robert: The one that encapsulates his whole philosophy is, "Don't look for the needle in the haystack. Buy the haystack." In other words, just buy the whole market. And history has shown that, if you do that, you will outperform the vast majority of mutual fund managers, as well as individual investors.

Vanguard now has more than 200 funds and ETFs, and it's not just the Vanguard 500. You can have a small-cap index fund. I actually asked Morningstar to provide me with the top-performing 25 funds over the last 20 years that have had the same manager, and Vanguard's small-cap index fund is right there among the top five. So there are other options at Vanguard that also provide outstanding returns.

Alison: Any fun facts about Jack we should know?

Robert: The dude is just hilariously frugal. When he came to speak at The Motley Fool back in 2008 or 2009, he had this shirt on, and he was complaining that his wife made him buy it because the other shirt he had was looking a little ratty. And in a 2012 interview with Reuters' Chris Taylor, the interviewer asked him, "Do you have any extravagances?"

This is what he said. He said, "Every winter my wife and I take a week off and we go to a resort in Florida. But I really can't stand spending money on myself. I don't like going into stores. I don't like the whole process of buying things." So here's a guy who was, at the time, 83 years old still working, and his big extravagance is that he takes a week off with his wife and goes to Florida.

Alison: A whole week.

Robert: I know. It's pretty funny.

Alison: Let's move on to the next investor. This is the one I've never heard of, but then again, it's me, so I don't know if that says much. It's more about me.

Robert: No, it's not, because I bet most people will not have heard of this person, and that's because most people cannot invest in his hedge fund -- and this person is Jim Simons. You'd be hard pressed to find someone who's had as much academic and investing success as this guy.

So in 1958, he goes to MIT. Gets his mathematics degree. Gets a Ph.D. from Berkeley. He taught at MIT and at Harvard. At Stonybrook. He made significant contributions to math. I'm sure we all are familiar with the Chern-Simons form.

Alison: It's my favorite form.

Robert: That's right.

Alison: Top three. Top three.

Robert: In 1976, he was awarded the Oswald Veblen Prize by the American Mathematical Society. In the world of geometry, that's like getting the Best Director at the Academy Awards. It's the best award you can get in geometric circles. Get that? That's what I said.

He doesn't do that many interviews -- he likes to stay very private -- but in a 2015 TED interview, he said by his late 30s, he was bored with math. He thought he'd start investing, so he started a hedge fund in 1982 (a company called Renaissance Technologies). He used computer-enabled statistical analysis to look for patterns in prices, make predictions about investments, and invest accordingly.

That made one of the first of what we now call "quant funds," basically funds that invest just on quantitative analysis, and it worked. According to Bloomberg, from 1994 to mid-2014, the main fund returned, annualized, 71.8% a year...

Alison: Wow!

Robert: ...before fees.

Alison: Oh!

Robert: The fees? Ridiculous. So the average mutual fund charges about 1%-1.5%. The average hedge fund does something called "2 and 20" (2% a year plus 20% of profits). At one point, Jim Simons' fund charged the highest fees of any hedge fund ... 5% a year and 44% of the profits.

Alison: Wow.

Robert: And people still are clamoring to get in. So when you add his success to those high fees, his net worth is probably well over $15 billion at this point. And it's interesting because, we at The Motley Fool definitely are proponents of buy-and-hold investing, business-focused investing. He's doing what would now be called high-frequency trading, and it worked for him. And so there are lots of ways to make money. It's just that most people don't make money this way.

Alison: Well, most people didn't win the "Zamboni Award" from the "Mathematical Association from..."

Robert: He's a bright boy and he's managed to get other bright folks to come along and work for him.

Alison: Any wise words from Jim? Can I call him Jim?

Robert: You can call him Jim. Why not? He once said, "I wasn't the fastest guy in the world. I wouldn't have done well in an Olympiad or a math contest. But I like to ponder. And pondering things, just sort of thinking about it and thinking about it, turns out to be a pretty good approach."

And he has a lot in common with a few of the other folks that we will highlight in that he is definitely a contrarian. He acts in a way that is different than everyone else -- most of the people on Wall Street -- and that's been a big secret of his success.

Alison: Any quirky things we want to know about him?

Robert: During the 1960s, he was a code breaker for the NSA until he was fired, partially because he wrote a letter to an editor of a newspaper (a newspaper or a magazine) basically speaking out against the Vietnam War. And in honor of his contributions to mathematics, as well as his philanthropy, the International Astronomical Union named an asteroid after him.

Alison: Aw!

Robert: Isn't that nice?

Alison: That's so sweet. Let's move on to our next investor, and this is also someone I've never heard of.

Robert: Then you need to listen to more of Tom Gardner's speeches -- Tom Gardner being the co-founder of The Motley Fool -- because No. 3 of our greatest investors of all time is Shelby Davis, and Tom mentions him every once in a while in his speeches. Rick, have you ever heard of Shelby Davis? We get a nod from Rick.

Rick Engdahl: Yes.

Robert: Yes. And he is famous because he turned $50,000 of his wife's money into $900 million over 47 years. That's a compounded rate of return of more than 23% a year. He started off in life not necessarily being interested in investing -- more in politics. He got an undergraduate degree in Russian history from Princeton in 1930. Got a Ph.D. in political science from the University of Geneva in 1934. He worked on Thomas Dewey's presidential campaigns in 1940 and 1944, Thomas Dewey being the governor of New York.

Since he didn't win the presidency, he hired Shelby Davis to be his insurance commissioner for the state of New York from 1944 to 1947, and that's important because once Shelby Davis started his own investment firm in 1947, he basically focused on insurance stocks, and it did very well for him.

He focused particularly on low P/E stocks (price-to-earnings ratio), so low-value stocks, but also ones that had depressed earnings, so that he would get what he would call his "Davis double play." Then when the company turned its earnings around, it would get a little boost in the stock price, but then people would see that it's a cheap stock that's now gaining earnings, rush into the stock, and drive up its valuation. So he had two forces going to work for him there.

He was a big believer in diversification. Depending on which source you consult, when he died in 1994, he either owned [about] 500 stocks to over 1,000 stocks, partially because he just never sold. He bought and held on for the long term. And it's turned out to be a family business. Shelby's son (also named Shelby) founded Davis [Advisors] in 1969. They currently manage more than $2 billion with the help of the original Shelby's grandsons, Chris and Andrew, who manage some of those funds.

You can learn about the whole family, as well as some pretty fascinating history of Wall Street, in a book by John Rothchild called The Davis Dynasty.

Alison: What are some smart words from Shelby that we should all take with us?

Robert: Probably the most famous one is, "Bear markets make people a lot of money. They just don't know it at the time."

Alison: I like that.

Robert: Another quote will get into the interesting facts, here. At one point, one of his grandsons asked Shelby for a dollar to buy a hot dog, and this was his response: "Do you realize if you invest that dollar wisely, it will double every five years? By the time you reach my age, in 50 years, your dollar will be worth $1,024. Are you so hungry that you need to eat a $1,000 hot dog?" Which brings us to the fun fact in that he also was a very frugal person.

Alison: It sounds like it.

Robert: Yes. He didn't like to write things down, because that wasted paper. If he had to, he would use old envelopes or scraps of paper. He kept old shoes going with tape...

Alison: Wow!

Robert: ...and glue. His kids kept begging him for a pool. Even though at that point they were millionaires, he said, "I'm only going to do it if you actually dig the pool." He created trust funds for his kids, but they grew more than he expected, so he didn't think they should get them.

Alison: Oh, wow!

Robert: So when his daughter turned 22, he tried to make her give her $3.8 million trust fund to Princeton, his alma mater. She didn't like that idea...

Alison: No!

Robert: ...so it became front-page news in the New York tabloids for years. At some point, he said something along the lines of, "You don't need a trust fund. You need a good spanking." Something along those lines.

Alison: These guys may be great investors, but they may not be people I want to get a beer with.

Robert: I don't know about Shelby Davis. If you're very conservative, you probably would, because he was a big backer of the Heritage Fund from the early days. John Bogle, frankly, is one of my all-time heroes, so I would love to sit down and talk to him. He's a very educated guy. I mean, the name Vanguard is historical. I'm not going to go into all the details, but he's just a very well-educated guy.

Alison: I would get a beer with Jack. Jack, I would get a beer with you.

Rick: You would buy the beer.

Alison: I would have to buy the beer, but I'm OK with that. I just don't know about Shelby. I don't know about that guy. Let's move on to the fourth investor that we're going to talk about today, and this is a name I do know, but I don't know why.

Robert: And that name is -- John Templeton. He was born in 1912 in a small town in Tennessee, relatively poor. He did manage to get to Yale. Graduated toward the top of his class, and then went to Oxford to get a master's in law as a Rhodes scholar. So a bright guy.

Alison: Yeah! These are all bright guys.

Robert: Yes, very bright guys. What's interesting is he co-founded an investment firm in 1937, and America still was in the throes of the Great Depression. So starting an investment firm in the 1930s, to me, is a pretty gutsy call.

Then, in 1939, he basically bought every stock on the New York and American Stock Exchanges that was trading for less than a dollar. He ended up with 104 stocks, 37 of which [were] already in bankruptcy. He sells four years later. He quadrupled his money.

In an interview in 2004 (he's now passed away) with SmartMoney, they asked what made him do that and he said, "Hitler was going into Poland, and I knew that during times of war, things become scarce. And when things become scarce, prices go up. That's why I did it." And that hints to why John Templeton is really famous, and that is he was really one of the first global investors.

He said when he was growing up in Tennessee, nobody owned shares of anything. Then he went to Yale, and he saw plenty of people who owned shares, but they were all shares of U.S. companies, and he couldn't get anyone to explain to him how he could get shares in other companies. That's when he saw that as an opportunity.

His mainstay flagship fund he founded in 1954. It's still around, and managed by other people. He's not managing it. It's hard to manage when you're dead.

Alison: When you're dead, yes. He's good, but not that good.

Robert: Not that good. But it was the first truly global fund. He started buying Japanese stocks in the 1960s, which no one was doing, which paid off huge, because in the 1980s, in particular, Japan was the place to be. And according to a fellow by the name of Frederik Vanhaverbeke, who wrote a very-interesting book about who the greatest investors were, he found that over Templeton's career, he outperformed the S&P 500 by approximately 3% a year, so if you compound that over the almost 40 years he was an investor, that's a huge thing.

Alison: Do you have any notable quotables from John Templeton?

Robert: Yes. He was also known as being a contrarian, and the quote I would give you is, "If you want to have a better performance than the crowd, you must do things differently from the crowd," which leads us into one of the fun facts, and that is, he renounced his U.S. citizenship and lived most of his life in the Bahamas. He renounced the citizenship because he didn't want to pay so much in taxes. He wanted to be in the Bahamas because he said that you have to be far away from Wall Street if you want to act different from Wall Street.

He had dual Bahamian and British citizenship. He actually was a great philanthropist. He gave away about $1 billion to various causes, and because of that he was knighted by Queen Elizabeth -- so he's actually Sir John Templeton, born in Tennessee, lived mostly in the Bahamas. An interesting guy.

Alison: And let's move on to the fifth and final great GOAT investor that we're going to talk about today, and that is...

Robert: The one that everyone expects...

Alison: ...everyone wants...

Robert: ...that everyone knows, and that, of course, is Warren Buffett.

Alison: Mr. Warren Buf-fay.

Robert: That's true. And so, of course, you always have to do the obligatory "how much money you would have if you had invested in Berkshire Hathaway from the beginning," and that is from 1964 to 2015, Berkshire Hathaway returned 20.8% compared to 9.7% for the S&P 500. So a $1,000 invested in the S&P 500, today you'd have $112,000.

Alison: Not bad.

Robert: Not bad. In Berkshire, $15.3 million.

Alison: Oh, that's a lot better.

Robert: That's a lot better. The interesting thing about Warren Buffett is, he really was an entrepreneur and investor from a very early age. He told someone, about the time he was 13, [that] "If I'm not a millionaire by the time I'm 30, I'm going to jump off the tallest building in Omaha," which is where he grew up.

One lesser-known thing about him is that he is a big supporter of Democratic causes. His father was actually a Republican congressperson who hated FDR and the New Deal, but when he was in office, Warren Buffett grew up and lived in Washington, D.C. He became a newspaper delivery boy for The Washington Post, which he later, as an adult, invested in. And this is back in the '40s, mind you. As a kid, he made more than $5,000 delivering newspapers.

Alison: Wow!

Robert: And by the time he was a teenager, at 14 years old, he invested $1,200 of his savings in 40 acres of farmland. So from a very young age, this guy was looking for ways to make money. He and a friend would buy used pinball machines, install them in barbershops, and share the profits with people. So he was wired for this type of thing.

Alison: Well, he's extremely quotable, so were you able to narrow it down to just one?

Robert: You know, it's not the most exciting one, but it's the one that, frankly, encapsulates what he mostly believes in and that is...

Alison: Is it the tree one?

Robert: No.

Alison: Is it the... I don't know.

Robert: It is, "Shares are not mere pieces of paper. They represent part ownership of a business, so when contemplating an investment, think like a prospective owner." I should, of course, add another one, and that is, "If, when making a stock investment, you're not considering holding it for at least 10 years, don't waste more than 10 minutes considering it." That's been the secret of Buffett's success, as well as the success of people like Shelby Davis. They found good companies at reasonable prices -- not necessarily supercheap prices -- but they were willing to hold on for decades.

Alison: And he's also an extremely quirky guy. Were you able to narrow it down to one fun fact?

Robert: He is a very quirky guy with a very interesting biography, but I think the fun fact about him is that many people don't know that he's a big proponent of index funds. In fact, he thinks most people should be invested in index funds. We mentioned in a previous episode that that was his advice for LeBron James when LeBron James asked him for investment advice.

And in his will, he stipulates that some of his estate will be invested in index funds. So he recognizes, even though he he's had this great success, that it's actually very difficult to beat the market.

Alison: So that is the first five of our two-part series on the GOATs of investing. We'll be back next week with five more fascinating investors that you can learn from.

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♫(Wait) Oh yes, wait a minute Mister Postman, (Wait)♫

Alison: The postcards keep coming in and I have one I have to share.

Robert: Please do.

Alison: So bear with me, here. This is one that came from Randy in Tulsa, and I realize talking about a postcard does not make for great radio, but I will describe it to you. The postcard is probably about 50 years old, and it's a postcard of the Cook's Court Motel in Tulsa, Oklahoma. At the time, getting a room at the hotel was $2.50 a night.

Randy writes: "My parents bought the land this motel has been on and built a collision repair center. We opened for business 40 years ago, tomorrow. I was 16. Now, at 56 (I'm good with math), the help I've received from Foolish advice has me comfortable that I'll be ready to retire at 65. Thanks for your services and podcasts. Fool on!" How cool is that?

Robert: That is very cool.

Alison: Isn't that awesome? We also want to thank [Kathy] in Virginia who sent a postcard from her alma mater, Kansas State. We've got [John from Mass], who visited St. Louis. And Mother, who sent probably the biggest postcard so far, and of course it's from Texas.

And as far as the postcard that has traveled the farthest distance, I'm sorry Berlin. You've been beaten by Afghanistan. That's right. [Alan] has sent us a postcard all the way from Afghanistan. Unfortunately, he says, "Sorry. Afghanistan is not a tourist trap, yet. No postcard vendors. Can you believe it? Damn rocket attacks." So he, instead, sent us a card from Chuy's, which is his favorite restaurant, and he picked up a postcard while he was at the Dulles Airport. He says, "Keep the good times coming."

He addressed the postcard: "Dearest Alison and that other guy." It's the Alison Southwick Show, apparently. [Alan], thank you for listening, and most of all, stay safe out there in Afghanistan. Sending lots of Foolish love your way.

Fingers crossed we can still get a postcard from the Olympics. Again, our address is 2000 Duke Street, 4th Floor, Alexandria, Virginia, 22314. Thanks you guys. These really warm our heart. Thanks.

Rick: Warms our heart?

Robert: We share the same heart. Don't I get the heart tonight?

Alison: It warms our (plural) hearts. Not our collective heart. Of course, we also take questions, in addition to postcards, because we're called Motley Fool Answers. You can email us at [email protected], or you can leave a voice mail at (866) MRSFOOL. It just cracks me up.

That's going to do it for today. The show is edited GOATingly by Rick Engdahl. I don't know. It's fine. It's fine. Just go with it. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody.