Investment Gurus A Road Map to Wealth from the World's Best Money Managers

387 Pages·1999·1.25 MB·English

by  Peter J. Tanous

A ROAD MAP TO WEALTH FROM THE WORLD’S BEST MONEY
MANAGERS
PETER J. TANOUS
FOREWORD BY ANDREW TOBIAS
PREFACE BY RICHARD C. BREEDEN
Prentice Hall Direct
Library of Congress Cataloging-in-Publication Data
Tanous, Peter.
Investment Gurus / Peter Tanous.
p. cm.
ISBN 0-7865-8714-8
1. Investment advisors - United States - Interviews. 2. Stocks. 3. Portfolio
management. I. Title.
HG4928.5.T36 1997
332.6 - dc20 96-42939
CIP
© 1997 by Peter Tanous
Foreword copyright 1997 Andrew Tobias
Preface copyright 1997 Richard C. Breeden
All rights reserved. No part of this book may be reproduced in any form or
by any means, without permission in writing from the publisher.
This publication is designed to provide accurate and authoritative information
in regard to the subject matter covered. It is sold with the understanding
that the publisher is not engaged in rendering legal, accounting, or other
professional service. If legal advice or other expert assistance is required,
the services of a competent professional person should be sought.
From a Declaration of Principles Jointly Adapted by a Committee of the
American Bar Association and a Committee of Publishers and Associations
ISBN 0-7865-8713-X
Prentice-Hall International (UK) Limited, London
Prentice-Hall of Australia Pty. Limited, Sydney
Prentice-Hall Canada Inc., Toronto
Prentice-Hall Hispanoamericana, S.A., Mexico
Prentice-Hall of India Private Limited, New Delhi
Prentice-Hall of Japan, Inc., Tokyo
Simon & Schuster Asia Pte. Ltd., Singapore
Editora Prentice-Hall do Brasil, Ltda., Rio de Janeiro
DEDICATION
Most of us recall individuals who influenced our lives early
on, perhaps in school or in early career stages. I dedicate this
book to five wise men who influenced me not early, but later
in my personal and professional life. It just proves that you are
never too old to learn.
To: George N. Frem
Joseph J. Jacobs
Charles H. Percy
John H. Sununu
and the late Philip C. Habib
ABOUT THE AUTHOR
PETER J. TANOUS is President of Lynx Investment Advisory, Inc.
of Washington D.C., a registered investment advisor. Lynx provides
consulting services relating to the selection and monitoring of money
managers. Its clients include institutions and individuals worldwide.
Before founding Lynx, Tanous was Executive Vice President and a
director of Bank Audi (U.S.A.) in New York City.
Prior to joining Bank Audi, he was Chairman of Petra Capital Cor-
poration, a New York Stock Exchange member firm, which he co-
founded. During his 15 years at Smith Barney, Inc., Tanous served as
the International Director. He was also manager of its Paris office and
a Director and member of the Executive Committee of Smith Barney,
International. He is currently a director of Cedars Bank in Los Angeles,
and a director of Interstate Resources Inc., a paper manufacturing
company based in Virginia.
Mr. Tanous has written articles on the securities industry which
have appeared in French and English publications. In addition, he
has authored and co-authored three novels which have been translated
into several foreign languages.
Mr. Tanous received a Bachelor of Arts degree in economics from
Georgetown University in 1960. He has served as a member of Board
of Advisors of Georgetown’s College of Arts and Sciences. A long
time resident of New York City prior to moving to Washington D.C.,
he served as a trustee of the Browning School, a private school in
Manhattan.
In 1991, Mr. Tanous was the recipient of the American Task Force
for Lebanon Philip C. Habib Award for Distinguished Public Service
whose prior recipients have included Senator George Mitchell, Gov-
ernor John Sununu, and Senator Bob Dole. He was awarded the Ellis
Island Medal of Honor in 1994.
Peter Tanous is married to the former Ann MacConnell. They have
three grown children.

CONTENTS
Preface ix
Foreword xiii
Part One: The Landscape 1
2
Introduction
12
Tools of the Trade
Part Two: The Gurus 29
31
Michael Price
49
Richard H. Driehaus
70
Mario Gabelli
80
William F. Sharpe
99
Peter Lynch
118
Laura J. Sloate
133
Scott Sterling Johnston
149
Eugene Fama
160
Bruce Sherman
177
Eric Ryback
191
Merton Miller
206
Foster Friess
221
Van Schreiber
231
Rex Sinquefield
254
John Ballen
271
Roger F. Murray
288
Robert B. Gillam
306
David E. Shaw
Part Three: The Route 329
330
Your Road Map to Wealth
349
Crafting an Intelligent Personal Investment Plan
PREFACE
America’s investment markets are the most active and efficient in
the world. These markets provide capital to more than 10,000 com-
panies ranging from the tiniest venture-stage company to giant
multinationals. Local, state, and national government agencies and
a host of trusts, partnerships, and other special purpose entities also
seek funds. To a degree strikingly different from most other countries
that rely nearly exclusively on their banking system, the United States
public securities market is the principal avenue for financing the
broader United States economy.
Issuers offer securities ranging from traditional stocks and bonds
to highly complex structured instruments and esoteric derivatives.
Thousands of different mutual funds offer individual investors both
diversification and professional management. For investors, this pro-
fusion of issuers represents a world of investment opportunity.
Investor choice in the American capital market extends beyond the
type of instrument and the specific issuer to span the spectrum of
risk. Under our system, investors have the right to take risks according
to their own risk tolerance and to seek out extraordinary gain even
at the risk of painful loss. With millions of individual decisions eval-
uating risk and reward, the market as a whole represents a distillation
of economic judgment about risk that is far more accurate than any
government body could ever hope to be.
If choice is the dominant characteristic of this extraordinary market,
choice also complicates the task facing any particular investor. In
Investment Gurus, Peter Tanous interviews many of the nation’s
leading investment managers and some of the academics who have
helped establish the intellectual underpinning for today’s investment
strategies. These interviews present, in their own words, the strategies
that some of the best-known professionals have brought to their in-
vesting.
These stars of the investment profession express many views on
the relative merits of growth and value stocks and on different theories
for producing above-average returns. As we listen to what the suc-
cessful managers say, it becomes clear that choosing risk wisely in
order to obtain higher than market returns is in many respects the