The Old School

When I came to work on Wall Street three decades ago, my timing was excellent.

It was right at the start of what I call the “Hedge Fund 2.0” period. What does that mean?

This means that I was part of the second generation of hedge fund managers who benefitted from the industry's growth. Before my generation, though, there was another famous one.

Hedge funds first were invented back in the 1930s by Alfred W. Jones. You can read our piece on him here.

For the next fifty years, though, they were rare. There weren't many of them, nor did they have much capital under management.

This began to change in the 1980s and early 1990s with the emergence of some of the most well-known hedge fund greats—investors like George Soros, Julian Robertson, Paul Tudor Jones, and many others.

One of those who is less well-known amongst regular investors is Leon Cooperman.

Cooperman grew up in the South Bronx and joined Goldman Sachs after graduating with an MBA from Columbia Business School. He spent over two decades there and eventually headed up their efforts, creating a wealth management business.

In 1991, after many years at Goldman, he resigned as a partner and the CEO of Goldman Sachs Asset Management to create his own private investment partnership – Omega Advisors, Inc.

Over the next twenty-five years, he became a billionaire through savvy investing.

You may recognize his name (and face) from his many boisterous appearances on CNBC over the years. Lee doesn't lack opinions!

We have met several times in passing, although I'm not sure he would recognize me. Every time he is on CNBC, I turn everything else off to hear his insights. He truly is an "OG" of the hedge fund industry.

Here are some of his simple and powerful insights. Enjoy.

This is one of our favorite quotes because it is so straightforward.

What becomes most successful on Wall Street usually begins with smart analysts and investors identifying a powerful trend. As that trend builds, the stocks go higher and higher and attract more attention.

The truly smart investors understand there is a time to take profits. They are also savvy about identifying when trends begin to change.

Very seldom do the most intelligent investors own these stocks when they crash.

Lee has many opinions. He also has a lot to be proud of with what he has done in his career as an investor and philanthropist.

His greatest strength, though, is his humility.

It is always one of the characteristics that has impressed me the most with him. A willingness to admit he is wrong and learn from his mistakes—a characteristic we could all use.

Not every BULL market will end the same, but Lee highlights three trends that are pretty good at killing them.

He leads with the one that most often kills them – growth is TOO good.

Higher-than-expected (and trending) economic growth can create huge gains in stocks. It also creates excesses that inevitably lead to many losses for investors who aren't flexible enough.

Throw on higher inflation and overreaction by the Federal Reserve, and you have a cocktail for a full-on BEAR market. Heed Lee's words carefully because this is how it will happen again.

He talks about how it is not about being the smartest in the game but one of the hardest working. It is also about surrounding yourself with super-intelligent folks who can help you figure it all out.

The part that is the least understood by inexperienced investors is how LUCK still plays a role in the process.

Remember, it is about probabilities and not certainties. Prepare to survive the worst of times, and you will be around to benefit from the best of times.

We think every investor should have this one tattooed on them!

Easy to read, simple to understand, and SO hard to execute.