People are obsessed with the “greatest of all-time” for many reasons. The first reason is because we like to confirm our preconceived biases. For instance, if Tom Brady is the greatest QB in NFL history then it means that Boston has been one of the best places to live in the last 20 years.¹ Or, if Warren Buffett is the greatest investor of all-time then that means that your value investing strategy, as bad or good as it has been, has still been a smart strategy since that’s what Warren does. We tend to form tribes around these debates and then use certain people as evidence that one tribe is better than the other. This is kinda fun, but generally useless in any practical sense.
The second reason we like to rank “the greatest of all-time” is because there are important lessons to learn from people who outperform. This is a more objective and rational perspective since it is not derived from emotional biases, but instead designed to understand performance with the intention of improving one’s future abilities. The prior debate is circular and of relatively low utility whereas the second debate is quite useful.
When it comes to ranking the greatest investors of all-time it would be easy to simply rank these investors by performance. For instance, if I were to do this I think my list would look something like this:
- Warren Buffett
- Jim Simons
- Stan Druckenmiller
If we’re engaging in the first tribal type of debate then this list is sort of fun as we can argue about the best way to implement a broad strategy – value investing, vs algo vs macro. If we’re focused on the second type of debate then this is kinda useless because the performance of these investors is virtually impossible to replicate. Their underlying models and processes are impossibly complex, sophisticated and at least partially due to luck.³
If we are looking for a more objective and useful list based on people’s influence that can be easily replicated then my list probably looks more like this:
- Harry Markowitz
- John Bogle
- Ben Graham
There’s a difference between how the people on the first and second lists operated. The second list is people who mostly constructed processes based on general principles – concepts like diversification, fees, tax efficiency, etc. These general principles are sound empirically based concepts that can help one generate better performance.
We often think of the greatest investors as those people who simply performed best. But the greatest investors are not merely those whose performance was outstanding, but those people who constructed a process by which more people outperformed thanks to the lessons they provided. For that reason I would argue that the people on the second list more accurately reflect the “greatest investors of all-time”.
¹ – These “greatest” athletes of all time debates are almost always confirmation bias and nothing more. People from Chicago want to argue that Jordan is better than Lebron because they’re from Chicago and like to think that Chicago is great. Likewise, people from Boston argue that Brady is better than Montana because they like to confirm the bias that Boston is great. This might all be right or it might all be wrong, but in the grand scheme of things these debates are relatively useless for any practical purpose aside from tribal bragging rights.²
² – Just to set the record straight – Tom Brady is a very good QB, but in a team sport with 53 players of which Brady plays less than half of the game, it is relatively silly to argue about whether he’s the best player of all time – there are just too many other factors that influence his performance and the outcome of games. The New England Patriots of the last 20 years are certainly the greatest dynasty in NFL history, however. As for Jordan vs Lebron – again, apples and oranges. Lebron is a dynamic guard AND forward. Jordan was just a guard. Personally, if you’re building a team around one player Lebron has to be your first pick out of all-time greats because he is so dynamic. If you’re looking to purely fill a 2 guard spot then Jordan has to be your top pick. So it’s a more nuanced debate than most perceive.
³ – Some people think Buffett uses a simple value investing approach, however, I would argue that Buffett’s approach has always been much more sophisticated than he implies. For instance, the real genius in Berkshire is not in his simple value investing approach, but has much more to do with the way he used the insurance business as a form of leverage and combined that with a private AND public equity arm. The structure of the business was far more innovative than the value investing strategy that is often attributed to his success.
Some people might also add that Buffett should be on the second list because he has provided us with so many timeless lessons. I don’t necessarily agree. I have found much of Buffett’s commentary to be contradictory. For instance, he berates active stock pickers, but continues to be an active stock picker. He berates high fee managers, but spent most of the early years of his partnership charging very high fees. It’s hard for me to tell what he really believes when his actions don’t always support his words.