The world’s best investors have developed a number of highly successful investment strategies in decades past. Some of these investors started out with as little as $100, and today boast fortunes worth billions.

We thought we’d take a look at the lessons from five of the world’s most successful investors and see how they can be put into practice.

1. Warren Buffett

It’s fair to say that Warren Buffett was born to invest. Known as ‘The Oracle of Omaha’, after the Nebraskan city where he was born, Buffet is one of the best known names in the investment world today. He started out with just US$100 to invest in 1954, and today he is worth $39 billion. His company, Berkshire Hathaway, has $372 billion in assets.

Lesson: "Be fearful when others are greedy and greedy only when others are fearful."1

Many people start investing when there’s a lot of hype around markets going up. This usually coincides with investments being overvalued and possibly at all-time highs. On the flip side, investors often sell investments when there’s talk of markets falling. This is usually when those investments are undervalued, because everyone else is also offloading them. Both of these are not clever approaches to building wealth.

Buffet learned over the years that the only way you can really make the most of your investments is to have consistent exposure to the markets, so that you’re buying low and selling high during all market cycles. MLC takes this approach to managing money. Known as ‘rebalancing’ this process ensures our portfolios don’t deviate too far from the original mix of assets, and that a continual and systematic exposure to markets is achieved.

2. John Templeton

At the start of World War II when investors were bailing out of investment markets, Templeton knew he had to ‘be in it to win it’. He sank US$10,000 into undervalued companies across the board, and four years later this approach netted him more than $40,000.

Templeton pioneered the global approach to investing. Today, Franklin Templeton Investments (which was formed after investment firm Franklin acquired Templeton, Galbraith & Hansberger, co-founded by Templeton) manages more than US$675.8 billion in investments (including some of MLC’s portfolios).

Lesson: "The best time to invest is when you have money. This is because history suggests it’s not timing which matters, it’s time."2

Templeton’s lesson highlights why "dollar-cost averaging" is so powerful. This strategy, where money is invested into the market at regular intervals, means you avoid the (potentially ill-fated) temptation to time the market.

The good news is that our superannuation system effectively does this for you! The nature of regularly contributing to super means you’re drip-feeding your investments into the market regularly and over a long period of time. A key advantage of this is that when markets are weak, like they are now, you’re buying more units for your dollar. And when they’re strong, you’re resisting the temptation to buy more when prices may be overvalued.

3. Peter Lynch

Considered the most famous of mutual fund managers around the world, Peter Lynch has coined some of the best-known mantras of modern individual investing strategies.

He started out in the business in 1969, and worked his way up to managing one of the world’s best known actively managed mutual funds, the Fidelity Magellan Fund, in 1978. The fund had assets of US$20 million when Lynch took over. When he retired in 1990, he had grown its assets to $19 billion – thanks to an amazing average return of 29 per cent every year.

Lesson: "It pays to be patient."3

Throughout his investing career, Lynch’s best gains came not in a matter of weeks or months, but usually in the third or fourth year.

He was a firm believer in the power of patience when it came to investments, and he said that investors’ ultimate success or failure would depend on their ability to ignore the worries of the world long enough to allow their investments to succeed.

4. Jeremy Grantham

Grantham is known for his uncanny ability to predict market bubbles and impending crashes. In 1989, he correctly called the peak of the Japanese economy. In January 2000, he warned of the impending tech crash two months beforehand and in 2008, he saw the Global Financial Crisis coming like "a train wreck in very slow motion".

This unique talent has led Grantham to become one of the most successful investors in the world, and his firm, Grantham Mayo Van Otterloo (GMO), is one of the largest fund managers in the world with US$93 billion in assets under management.

Lesson: "Reversion to the mean."4

Grantham’s ability to pick market moves comes through an understanding of what he commonly refers to as "reversion to the mean". Despite market peaks and troughs, he believes that all investment markets eventually return to "normal".

As much as this lesson applies to investments in overvalued markets, experienced investors also know that markets will inevitably go through low periods, and that even sustained negative periods eventually break and investment markets rebound.

5. Bill Gross

Considered the world’s leading bond fund manager (he’s called the "king of bonds") Gross is an expert in spreading risk, calculating odds and diversifying opportunities. He is the founder and managing director of the Pacific Investment Management Company (commonly called PIMCO), which manages more than US$1.35 trillion in assets for investors and institutions worldwide, including MLC.

Lesson: "Diversify, but don’t diversify yourself so much you’re left with portfolio mush."5

Gross is a big believer in intelligent diversification. Even if investors really like a particular investment option, he recommends they put a maximum of 10 per cent or so of the money they have to invest into it to minimise the risk. That said, he doesn’t believe in diversifying for diversity’s sake; rather he advocates investing selectively to get the best returns.

This is where multi-managers like MLC come into their own. When you invest in one of MLC’s diversified portfolios, each of your dollars is invested and diversified across asset classes, within asset classes and across approximately 40 investment managers.

What’s more, MLC’s research-driven approach to portfolio design and manager selection ensures every one of your dollars is put to work; with a focus on delivering competitive long-term returns while managing risk.

These are fundamental lessons that stand the test of time and are reflected in MLC’s proven approach to managing money. And so while you may not have the bank balance of the world’s best investors, you can share in the secret of their success by keeping these lessons in mind.

¹ Source: Berkshire Hathaway 2004 Chairman’s Letter
² Source: Mark Mobius, Executive Chairman, Templeton Asset Management, quoted on iStockAnalyst, courtesy of Bloomberg, 2 September 2011.
³ Peter Lynch and John Rothchild, Beating the Street, Simon & Schuster, 1994.
⁴ Financial Times, 21 July 2005.
⁵ Bill Gross, Bill Gross on Investing, John Wiley & Sons, 1998.