His lessons remain timeless as history has a tendency to repeat itself. While most investors forget the lessons of the past, Neff’s lessons are a great reminder of how to navigate through the challenges of today’s momentum-driven market. The most important prerequisites for investment success are judgement and fortitude, according to legendary investor John B. Neff, and investors do not require the help of glamour stocks or bull markets to attain their investment goals.
“Judgement singles out opportunities, fortitude enables you to live with them while the rest of the world scrambles in another direction. To us, ugly stocks were often beautiful,” he said in his book ” John Neff on Investing.”
Neff, who died in 2019, was an American investor, mutual fund manager and a philanthropist who had an impeccable investment track record. His portfolio and value investing style deserved a lot more attention than it got. Under his leadership, Windsor Fund became the largest mutual fund of that time. However, it was closed to new investors in the 1980s. In his three-decade-long career at Windsor Fund, the returns increased from 13.7% annually. Neff eventually retired from Vanguard, the investment manager that runs Windsor, in 1995.
Neff’s investment strategy may not have been eye-catching. Nevertheless, the returns he generated were outstanding, due to which he was considered as one of the greatest mutual fund managers. He himself described Windsor Fund as “relatively prosaic, dull, conservative” which many investors would not even look at. But by focusing on beaten-down, unloved stocks, Neff was able to find value in places that most investors overlooked. And when the rest of the market discovered these gems, he and his clients reaped the rewards.
During his illustrious career as a money manager, Neff often passed over the opportunity to invest in big growth stocks of that moment. Instead, he chose inexpensive, under performing ones. During his 31 years as a portfolio manager for Vanguard’s Windsor and Gemini II Funds, he beat the market 22 times.
Neff shared his investment wisdom in his book, which earned him international recognition as the “investor’s investor”. Here are some of his core principles that can help investors achieve investment success in the long run.
1. Be Disciplined
Investors need self-discipline and a curious mind if they want to achieve success in the long run, said the mutual fund manager. Also, he said, having a disciplined investment approach is extremely crucial for investors to navigate through capital market volatility. “Lack of discipline can lead to high failure in trading. Discipline in the stock market involves the will and dedication to stay focused and hardworking, along with the discipline to stick to your trading plan. When it comes to stock market investment, you get the opportunity to be your own boss. You decide how to invest and where to invest. In order to keep yourself aligned to get the best returns, high-level self-discipline is important,” he said.
2. Take Risks
Neff said it was important to keep one’s mind open and take the risk as and when required. Not taking risks for profitable returns could cause losses. “It is important to note that the risk you are taking should not be out of an emotional and irrational decision. Do your research and calculate the risk before delving any forward. Even if the view is unpopular, do your research about it and have the willingness to step outside of your comfort zone,” he said.
3. Look for value
Neff always looked for beaten-down or unloved stocks to find value. He had the ability to see value in a stock when others couldn’t. Neff firmly believed in low P/E (low price earnings ratio) investing and attributed Windsor Fund’s success to low P/E investing, the most reliable investment method. “Carloads of research statistics demonstrate that low P/E investing works, but no evidence I have seen speaks more convincingly than Windsor’s track record. The challenge is to foster opportunities for a free plus, and low P/E investing is the most reliable method I know. If you own a stock where negatives are largely known, then good news that comes as a surprise can have outsized effects,” he said.
4. Study industry properly
A wise investor always studied the industry, the products and its economic structure before investing, he said. Wise investors were active and always looked for opportunities that helped them get the best deal with high returns. “Prudent investors always stay abreast of developments, which is why casual investors […]
source John Neff on the merits of betting on low P/E investing