AND 11 OTHER WEALTH WIZARDS

WARREN BUFFETT

REVEAL THEIR

MONEY $ECRETS

or the Forbes special Summer Investment Guide we decided to interview some of the most successful, accomplished people in the world of money and investing. Im talking about thought leaders like Warren Buffettperhaps the greatest investor everbrilliant Yale economist Robert Shiller, hedge fund titan Julian Robertson and Vanguards Jack Bogle. We wanted to know their secrets: What money advice did they get that helped make them become great in their respective fields? What is their best advice for others? In this special report you will find the priceless money wisdom the Forbes team extracted from 12 experts. Some of it, such as the blunt comment from Columbia Business School professor Bruce Greenwald about the importance of other peoples money or Random Walk economist Burton Malkiels stock picking success story, will surprise you. Other advice may cause you to re-think your approach to building wealth.

WARREN BUFFETT CEO, BERKSHIRE HATHAWAY

Do you have enough cash yet? Warren Buffett, the third-richest person in the world, says that he had all the money he needed by age 25, when his net worth reached $200,000. Money has given me the independence to do what I love daily. Beyond that it has no real utility for me but enormous utility for others. That is why Im giving it away, says Buffett, 82. Indeed, Warren Buffett has joined pal Bill Gates and 112 other billionaires in The Giving Pledge, a rarefied group that has committed to giving the bulk of their fortunes to charity. So far Buffett has dispensed with more than $17 billion. When asked what the best money advice he ever got was, its no surprise that Buffett turned to his holy bible, The Intelligent Investor, written in 1949 by value god Benjamin Graham. "Chapters 8 and 20 have been the bedrock of my investing activities for more than 60 years, he says. I suggest that all investors read those chapters and reread them every time the market has been especially strong or weak. Heres the Twitter-generation version of what is contained in those two chapters: Dont let the mood swings of Mr. Market coax you into speculating, selling in panic or trying to time the market. Only after careful analysis of a companys ongoing business and its prospects for future earnings should you consider buying it and then only if its current price incorporates a significant margin of safety. It boils down to avoiding losses by owning only stocks selling well below your calculation of their fair or intrinsic value. After that, the key is to keep your emotions in check and be patient.

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JACK BOGLE FOUNDER, THE VANGUARD GROUP

In 1949 Jack Bogle was a Princeton student working a summer job as a runner at a Philadelphia brokerage firm when an older runner took him aside and said, Bogle, I want to give you the best stock market advice that you ever had in your life: Nobody knows nothing. And it was the best advice, since it served as the quasi-inspiration for his creation of the first stock market index mutual fund in 1975. If nobody knows nothing, you own everything, he reasoned. The index fund and the 84-year-old Bogles unwavering commitment to low-cost, long-term index investing helped Vanguard grow into the worlds largest mutual fund company. The twin ideas are also at the heart of his advice for young investors who want to get rich: Save early and regularly through a 401(k) or IRA, and put most of your money in a low-cost stock index fund. That way, he says, you benefit from the magic of compounding returns without having them destroyed or severely eroded by the tyranny of compounding costs. Bogle, who grew up poor in the Depression, says he thinks about money as existing on three levels: enough for a decent living, enough for the pursuit of happiness and a final level of even greater wealth that should not be about flagrant and conspicuous consumption but about helping those less fortunate. Our Founding Fathers would have been appalled at the gross excesses of todays society.

GARY SHILLING ECONOMIST; EDITOR, GARY SHILLING'S INSIGHTS

Play in your own sandbox, says economist and longtime Forbes columnist Gary Shilling, known for his prescient predictions of the demise of the housing bubble and for riding long bonds for three decades of the most profitable bond bull market in history. The biggest mistake people make is when they get stars in their eyes about the killing someone else has made. Thats what fueled the dot-com bubble and prompted people to own a half-dozen houses. Shilling, 76, likes to tell younger people the tale of the 1911 race to the South Pole between Great Britains Robert Falcon Scott and Norways Roald Amundsen. The Norwegian adapted many techniques already in use by Inuit Eskimos in the Arctic, including sealskin clothing worn inside out so the hairs wicked away moisture and kept his men warm and dry. He used sled dogs and fed on seals and penguins along the way. By contrast, Scott bet on the superiority of modern science. After all, Great Britains technology had been instrumental to its world dominance. Says Shilling, Scott used crawler tractors, which either sunk in the ice or were abandoned. He took Siberian ponies, which breathe and sweat through their skin. They promptly got ice sheets on them and died. Norway planted its flag first with no casualties. The entire British team perished. The point is, not everyone is Nobel Prize quality, says Shilling. Dont try to reinvent the wheel. Most of us will be better off in terms of what we can do for the world by just intelligently and efficiently applying what is already well known.

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MEREDITH WHITNEY FOUNDER, MEREDITH WHITNEY ADVISORY GROUP

You cant make money if you owe money. Thats the advice banking analyst Meredith Whitney got from her grandfather, to whom she dedicates her new book, Fate of the States (Portfolio, 2013). Leverage is something Ive never been very comfortable with. Whitney, 43, is still pounding the table about the financial crises facing states like California, Illinois and New Jersey. They are all struggling under the weight of bloated municipal governments with gigantic pension liabilities. She says many states have staved off bond defaults only by cutting services in areas like education, health care and infrastructure, andof courseby raising taxes. But as citizens assess their priorities and governments examine their finances, Whitneywho defines money as freedomexpects more defaults to occur. I dont feel that a bond obligation is any more morally valuable than a kids right to education or someones right to have a call answered if their house is on fire. Whitney advises muni investors to focus on those fly-over states where a manufacturing revival is already under way: North Dakota, Indiana and Texas. Getting rich starts with having a long-term plan and realistic goals. A lot of people dont have a plan, she says. And when it comes to picking investments she warns, There is nothing emotional about money; you need to have a sound basis for what you buy or own.

LEON BLACK FOUNDER, APOLLO GLOBAL MANAGEMENT

Just before he graduated from Harvard Business School in 1975, private equity titan Leon Blacks father passed away, and he inherited $75,000 in life insurance money. I got involved trading commodities. I went into copper. I went into cattle, sugar, soybeans, says Black, 61. Id never made this much money so quickly. At one point I was up $600,000 to $700,000. I said Boy, isnt this a fabulous thing? This is fun, and this is easy! Then prices plummeted, and for three days he was unable to sell. He lost all but $25,000 of his original capital. There I was, a Harvard Business School graduate, and I lost two-thirds of my inheritance, says Black. The money lessons were abundant. Know what you are doing, avoid get-rich-quick schemes, do your homework, dont bet the ranch, says Black, now worth $4.3 billion. I felt pretty silly. Its impossible to overemphasize the importance of starting on the right trackBlack worked early at Drexel Burnham Lambert with junk bond wizard Michael Milken. Start your career in a place where there is a lot of action, a lot of smart people who understand risk and reward, and work hard. Learn to be patient, and learn to be opportunistic.

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BURTON MALKIEL ECONOMIST, PRINCETON UNIVERSITY

While there are some Warren Buffetts in the world, says Princeton economist Burton Malkiel, identifying one is like finding a needle in a haystack. I say buy the haystack. Malkiel is referring to the get-rich-slowly strategy of regularly investing from a young age in a portfolio of broad, globally diversified stock index funds, easily accomplished using ETFs. The only thing Im absolutely 100% sure of is that the lower the fee I pay to the purveyor of the investment service, the more there is going to be for me. And thats why index funds work. Still, the efficient-markets dean and author of the classic book A Random Walk Down Wall Street admits that his best investment return ever came from picking a single stockprecisely what he preaches against doing. Says Malkiel, 80: I had gotten out of the Army with $2,000, and my father told me to invest it. Malkiel had been a finance officer and had worked on early IBM computers. Using a bit of what would later become known as Peter Lynch buy what you know stock picking, he put all $2,000 into IBM in 1958. Today its worth almost $500,000, he says, but is quick to add, It was the wrong thing to do, because a friend at the time urged me to put the money into a blue-chip stock like Eastman Kodak. Had I done so I would have lost all my money.

J U LIAN ROB E RTSON F O U N D E R , T I G E R M A N AG E M E N T

Hedge funds are the antithesis of baseball, says Julian Robertson, 80, billionaire founder of one of the most successful hedge funds ever, Tiger Management. In baseball you can hit 40 home runs on a single-A-league team and never get paid a thing. But in a hedge fund you get paid on your batting average. So you go to the worst league you can find, where theres the least competition. This rule has guided Robertsons investing strategy and is a big reason he has found some of his best ideas buying into forgotten markets, which he thinks are mostly in emerging countries today. Says Robertson, I suppose if I were younger, I would be investing in Africa. One emerging economy Robertson has a big stake in is New Zealand, where he owns vineyards, farmland and three world-class golf resorts. Ironically, it was a rash decision in 1978 to take a sabbatical from the brokerage business and move to New Zealand to pen an autobiographical novel, his wife and two young children in tow, which resulted in starting Tiger. Two years later Robertson gave up writing to return to Wall Street. The best money advice he ever got came from his father, a textile executive in North Carolina, who advised him to save to build up capital and to move to New York City to train on Wall Street. Robertson also stresses the importance of understanding numbers. Accounting was the course that helped me more than anything.

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BARRY STERNLICHT CEO, STARWOOD CAPITAL GROUP

Pay attention to the big themes, because thats what will help you earn ten times your money, says real estate mogul Barry Sternlicht, who initially built his hotel empire by scooping up the commercial loans of distressed savings and loans at crisis-related government auctions in the early 1990s. But, warns Sternlicht, if you focus too much on the micro, then you can be obliterated by the macro and vice versa. Recently Sternlicht, 52, has been taking advantage of another big fire sale and recovery theme, as his Starwood Property Trust REIT bought one of the largest managers of distressed commercial real estate, LNR Property LLC, for $1 billion in January. Sternlicht, who earned a liberal arts degree from Brown University before getting his M.B.A. from Harvard, claims that another key to success is to remember that you dont know anything ever and that you have to be willing to change your mind. As the facts change, he says, change your thesis. Dont be a stubborn mule, or youll get killed. He mentions a Miami condo deal he recently passed on. I wanted desperately to be in Miami, then my staffers told me that there are 130 projects under construction. So I changed my mind. Another important tactic has been to study outliers, rather than eliminate them, as the statistically minded might recommend. You can learn everything that there is to know about the industry or the player from the company that is performing better or worse.

BRUCE GREENWALD FINANCE PROFESSOR, COLUMBIA BUSINESS SCHOOL

Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. Renowned value investing professor Bruce Greenwald has committed those words referring to David Copperfields feckless optimist Wilkins Micawberto memory. Micawber lives beyond his means and ends up in debtors prison. For a college professor who consults regularly with the worlds top hedge fund managers and is often referred to as the guru to Wall Street gurus, remembering to keep ones spending in check isnt always so easy. Greenwald, 67, has two constructive pieces of advice for those seeking to become truly wealthy. First, you have to be very concentrated, develop an expertise like many entrepreneurs do. For investors it means being willing to take concentrated positions. He notes that in Warren Buffetts early years he developed an expertise analyzing insurance companies. Secondly, you have to get your hands on somebody elses money, he says bluntly. You need some kind of safe leverage, not borrowed money to be called. To me money is absolutely irrelevant, exclaims Greenwald loudly, with a chuckle. Living among academic colleagues, Greenwald says, he avoids ostentatious displays of wealth and heeds Micawbers Principle. At his parents direction he carefully adjusted his standard of living when he first became a professor in 1973 and now earns so much from his various consulting gigs that he has no need for the money and gives most of it away.

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DICK BOLLES AUTHOR, WHAT COLOR IS YOUR PARACHUTE?

When Dick Bolles first published What Color Is Your Parachute? in 1970, he had no idea the outsize impact his career guide would have. I never dreamed the job hunting problem was so widely faced. The book would have sold ten copies if you got the help you needed at school. Instead, the job-seekers bible has gone through 42 annual editions, sold 10 million copies in 20 different languages and, in 1994, was named one of the 25 books that have shaped readers lives by the Library of Congress. Bolles himself remains firmly on the job at 86, spending roughly four hours a day doing research and answering each and every one of the 6,000 e-mails and letters he receives each year. He regularly dispenses four pieces of advice. Foremost: Dont make money the most important thing about finding a job. Instead weigh salary against a positions responsibilities, location, working conditions and growth opportunities. You might be willing to take a pay cut to get one of those other factors. Those who arent at least considering this are going through life fishing for the biggest salary while being miserable. Second, Bolles advises delaying talk of salary, vacation time or health benefits until its clear they want you. Once the potential employer gets to know you better, they might in fact decide that youre worth more than the average person. Bolles also stresses the importance of keeping a diary. A weekly record of accomplishments at your current job will make it easier to discuss your role, in detail, when hunting for a new one. And as a finishing move, he advocates being bold. Somebody told me the best way to end an interview is to ask: With all weve discussed, can you offer me this job? When I first heard that, I thought thats kind of cheeky, putting the person right on the spot. Turned out it was exactly true.

ROBERT SHILLER ECONOMIST, YALE UNIVERSITY

Robert Shiller, perhaps best known for co-inventing the Case-Shiller Home Price Index, says the American dream of building wealth through homeownership is a fallacy. Ive documented that home prices in real terms didnt increase from 1890 to 1990, he says. That was the bubble thinking, but its still fresh in our minds. How do you get rich, then? Go into finance or a related field. Its a lifetime decision, advises Shiller. Finance is the technology for making things happen. Accountant, auditor, marketmaker these are big occupations. Shiller lectures his students that mathematics, astronomy, sociology are all very appealing, but there are no jobs in them. Shiller says his thesis supervisor, MIT economist Franco Modigliani, who won the Nobel Prize in Economics in 1985, taught him not to trust market efficiency because it was only a half-truth. He says Modiglianis papers on how inflation distorts markets prompted him to invest all his money in the stock market in the early 1980s as Paul Volckers rate hikes kiboshed inflation and sent the stock market soaring. Shiller tells his Yale students: If you are wealthy that means you are powerful, and you have to care about others. He then requires them to read Andrew Carnegies 1889 essay, The Gospel of Wealth, which instructs the rich to recirculate their wealth through philanthropy.

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LEON COOPERMAN FOUNDER, OMEGA ADVISORS

My dad would tell me there are more horses asses than there are horses, says billionaire hedge fund manager Cooperman, 70. Its the kind of advice that frames the skeptical go against the crowd mind of value investors like Cooperman. He likes out-of-favor stocks and ones that are underpriced relative to market multiples, book value and private market values. It works: His $8 billion Omega Advisors has been logging an average annual return of 13% since its inception in 1991. Advice for getting rich? It takes hard work, a passion for what you do and luck. And, indeed, it was an act of defiance and then luck that caused the Bronx-born Cooperman to discover his passion and skill as an investor. As a young man Coopermans parents pressured him into leaving New Yorks Hunter College to enroll in dental school. After paying tuition and purchasing all of the necessary tools, he decided he hated it and quit after only eight days, returning to Hunter to finish his degree. It was an embarrassing and very traumatic time in my life, he recalls. In order to fulfill graduation requirements, he took economics classes as electives. He got As, and this led to Columbia Business School, which led to Goldman Sachs in 1967. I found what I was interested in and never looked back, he says. With a net worth of $2.5 billion, Cooperman recently joined Bill Gates and Warren Buffett in pledging to give more than half of his fortune to charity. Money enables you to put bread on the table at first, but it also enables you to give back in a big way.

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