The Old Dons of the Market

Every trade has its old Dons. These are people who have been in it a long time, haven’t gone bust, have earned respect and taught the rest something. In our trade they’re remembered through stories told round the kitchen table. On the market, through books, letters and interviews. I never met any of them and I won’t pretend I did. Everything I’ll tell you is known from public sources, or they said it and wrote it themselves. What you should take from it, I’ll tell you in my own words.

John Bogle: Buy the Whole Haystack

John Bogle was fired from the company he ran. For more than twenty years he had built his career at one of the oldest American fund management firms and risen to the top of it. And he was thrown out after a merger he had approved himself. He later called that deal his biggest mistake. He was in his forties.

In 1974 he founded Vanguard. Soon afterwards he launched a fund that didn’t try to pick the best shares, but simply bought all the shares of the biggest American companies in the same proportions as in the index, and charged a minimal fee for it. Competitors laughed and called the fund “Bogle’s Folly”. At launch it raised far less than had been hoped. Today index funds like it manage trillions of dollars.

Bogle’s main idea fits into one sentence that’s often quoted in his name: don’t look for the needle in the haystack, just buy the haystack. That idea has its price too. Whoever buys the haystack will never beat the market. He’ll get the market minus a small fee, fall with everyone else in a bad year, and never be able to tell himself he was smarter than the man next door.

What should you take from it? Management fees eat your returns slowly and quietly, like rust. Whoever charges you least often earns you most. It’s the common fund all over again. It pays the captains nothing for “smart picking”. It just holds a share in the whole neighbourhood.

Charlie Munger: Don’t Be Stupid

In 1973 Charlie Munger’s partnership lost thirty-two per cent. In 1974, another thirty-one. Anyone who trusted him with a dollar at the start of seventy-three was holding less than fifty cents two years later. And yet the partnership ran from 1962 to 1975 and, even with those two years, returned an average of almost twenty per cent a year. The Dow Jones index was growing at five back then. From 1978 until his death Munger was Warren Buffett’s number two at Berkshire Hathaway. He died in November 2023, a little over a month short of his hundredth birthday.

In a letter to the shareholders of one of his companies in 1990, he wrote the line I like best of all his sayings: it’s remarkable how much long-term advantage people like us have got by trying to be consistently not stupid, instead of trying to be very intelligent. And in his famous talk on the psychology of human misjudgment he advised never, under any circumstances, thinking about anything else when you ought to be thinking about the power of incentives.

What should you take from it? Munger lost about a third of his capital two years running—and still became one of the most respected investors of the century. He didn’t avoid losses. He lived through them. And if you want to understand why a man acts the way he does, first find out what he’s being paid for. That’s what I’ve been drumming into you all through this book.

Howard Marks: You Can’t Predict, You Can Prepare

In the autumn of 2008, when everyone was selling in a panic the debts of people about to go bust, Howard Marks’s company Oaktree was buying those debts—out of a fund of nearly eleven billion dollars raised that same year. The biggest fund of its kind at the time. The bet was that panic sells things cheaper than they’re worth. Nobody announces the bottom in advance. Had the fall dragged on, that money would have sunk along with the market, and anyone who buys into a panic always runs that risk.

Marks had been working towards that autumn for twenty years. From the late eighties he had dealt in distressed debt, and in 1995, with four colleagues, he founded Oaktree. He made his name by writing letters to his clients. Buffett said that when he saw a letter from Marks in his post, he opened it first. One of them, from November 2001, is called “You Can’t Predict. You Can Prepare.” In it he writes that cycles are inevitable and quotes an old letter of his own: the mood swings of the securities markets resemble the movement of a pendulum.

What should you take from it? Marks buys the debts of people who can’t pay. In our world that was the loan shark’s job—buying up other people’s IOUs at half price. The difference is that Marks works through the courts, not through threats. And he makes his money by not giving in to panic, not by creating it. Being ready for a bad year means money sitting idle in the good ones. Marks paid for that readiness. So did Don Vincenzo, with his envelope in the desk drawer.

Don Valentine: A Big Market

In 1978 the venture fund Sequoia Capital put a hundred and fifty thousand dollars into a young company called Apple. The fund had been founded in 1972 by Don Valentine, a former semiconductor salesman from the companies that built Silicon Valley. The fund’s first investment was Atari, which was later sold for twenty-eight million dollars. Later the fund backed Cisco and many other companies that became giants. Valentine died in 2019.

In an interview with the Stanford business school in 2010, he explained his approach very simply. Our aim is always to build big companies. If you’re not going after a big market, you’re unlikely to build a big company. And among founders he liked people who know what they don’t know.

What should you take from it? A venture investor makes lots of small bets. Most of them are lost. He bets for the sake of the few that will grow a hundredfold. That’s an option, pure and simple: all you can lose is what you put in, and what you can win has no limit. Only in that line of work the lost bets always outnumber the good ones, and you have to put up with it for years. As for the idea of a big market, I’d translate it into our language like this: choose the turf, not the man. A big neighbourhood will feed even a so-so capo. A small one won’t save a genius.

Jim O’Shaughnessy: Rules Instead of Feelings

In 1997 Jim O’Shaughnessy brought out a book, What Works on Wall Street, in which he used decades of data to test which simple rules for picking shares had actually beaten the market. His approach is quantitative. Buy shares by rules set in advance—cheap ones with low debt, say—hold them as a basket and review them on a schedule, without giving in to your mood. In 2007 he founded his own management firm; in 2021 the big firm Franklin Templeton agreed to buy it.

On a podcast in 2025 he recalled an old saying of his: the four horsemen of the investment apocalypse are fear, greed, hope and ignorance. And he added that of the four, only ignorance isn’t an emotion.

What should you take from it? Fear, greed, hope and ignorance—that’s exactly what our world made its money on, when it took bets, ran lotteries and built pyramids. O’Shaughnessy guards against them with rules written down in advance. Like Don Vincenzo with his lean-year sheet. A rule you wrote down when you were calm is smarter than you when you’re scared. But a rule has its price too: there are years when it loses to the market, and that’s when it’s hardest to stick to.

Morgan Housel: The Wealth You Don’t See

Grace Groner was orphaned young. All her life she worked as a secretary in the same job, lived alone in a small house and didn’t drive. She died in 2010, at a hundred. And she left seven million dollars to charity, built up from modest savings and eighty years of patient compound interest.

Her story was told by the financial journalist Morgan Housel, the youngest on this list, in a 2018 essay that later grew into the book The Psychology of Money. There he wrote that the financial industry talks too much about what to do and too little about what goes on in your head when you try to do it. And one more line I’d like you to remember: wealth is, in fact, what you don’t see. And room for error, Housel writes, lets you endure, and endurance lets you hang on long enough.

What should you take from it? Wealth you can see is money that’s already been spent. Remember Pistone and his acquaintances, who’d make a big score and live it up for two weeks? That was visible. Grace Groner wasn’t. She paid for it with a life without a car and without luxury, and everyone decides for himself whether that price is worth seven million for other people’s good. But the capo Jimmy Capasso, who advised putting something aside from every job with a trustworthy friend, would have agreed with her, I think.

Stanley Druckenmiller: Protect Your Capital, Strike When It’s Certain

September 1992 brought “Black Wednesday”. Stanley Druckenmiller, the lead manager of George Soros’s fund, played against the British pound together with Soros. The Bank of England spent huge reserves propping up the pound and was forced to give in. The fund’s profit reportedly topped a billion dollars.

Seven years later the same man got it badly wrong. At the turn of 1999 and 2000, by his own admission, he bought technology shares near the very top. Soros’s fund lost billions on them, and in the spring of 2000 Druckenmiller left. Meanwhile he had been running his own fund in parallel since 1981. By the available figures, over three decades it returned an average of around thirty per cent a year and never had a losing year. In 2010 Druckenmiller closed it, with more than twelve billion in it.

In an interview for Jack Schwager’s book about great traders, he recalled a lesson he’d learned from Soros: what matters is not whether you’re right or wrong, but how much you make when you’re right and how much you lose when you’re wrong. And a formula traders love to quote: it takes courage to be a pig—that is, to take a lot when you really are sure.

What should you take from it? Druckenmiller is Bogle’s opposite, and each is right for his own kind of people. One bought the whole haystack and didn’t think about a thing. The other thought about every blade of straw and struck with all his might when, once in a while, he was sure—and once struck with all his might and missed. Even the Bank of England, as it turned out, can be squeezed till it gives, if you know how much it has in its till. But for that you need more in yours.

What They Have in Common

Less than you’d like. Bogle advises not picking; Druckenmiller, picking rarely and striking with all your might. Marks buys what’s being sold in a panic, Valentine bets on people nobody knows yet, O’Shaughnessy trusts neither himself nor them, only the rule. Follow one, and you’ll find yourself arguing with another.

They have only one thing in common: each kept a margin for error and knew the price of his own method. The haystack will never beat the market. A big bet will one day hit you yourself. A rule can lose for years. Money kept for other people’s panic sits idle for years.

Don Vincenzo never read a single one of them. He chose his own way: three weeks’ stock, a five-year contract, an envelope in the drawer. And he paid for it too: in a good year he overpaid the mill, because the price had been fixed in advance. Which method is yours is for you to decide. Just know what it will cost you, and decide before things get frightening.