Just finished skimming through "John Neff on Investing". Enjoyed the book. Apparently was given a cold shoulder on Wall Street, before going on to manager the Windsor fund. Also no MBA just some courses on finance and investing.
Also espouses low p/e strategy like Dreman. Amazing to me in some ways, if so easy why not more millionaires around ? Anyway, maybe this will lean me more toward value investing in the future.
From the book:
Windsor was never fancy. These were its principal elements:
1) a low P/E ratio.
2) Fundamental growth in excess of 7%
3) Yield protection, enhancement in most cases
4)Superior relation of total return to P/E paid.
5)No cyclical exposure without compensating p/e multiple.
6) Solid companies in growing fields.
7) Strong fundamental case.
"total return" described our growth expectations.
total return = earnings growth + yield.
Without these growth expectations, rational investors do not buy equities.
As a way to measure the bang for our investment buck, total return divided by initial p/e could not have been more succinct.
total return ratio = (total return) / (p/e)
We preferred stocks whose total return ratio exceeded the market average by 2 to 1.
e.g
company earnings growth yield total return p/e total return ratio
--------- ----------------- ----- ----------- ---- -----------------
yellow freight 12% 3.5% 15.5% 6X 2.6
1999 market 8% 1.5% 9.5% 27X 0.35
Inflection points abound!!
However most of these take investors by surprise. The market place always becomes momentum-laden as inflection points draw near. In my experience, markets are continuously foolish thanks to investors who forget the past.
So long as fundamentals remain intact, we were not averse to holding stocks for 3-4 years, but that has not prevented us from taking profits right away. There have been times we have owned shares for a month or less.
When you feel like bragging about a stock, its probably time to sell.
In overpriced markets, we periodically went to as much as 20% cash. (A higher percentage wasn't prudent for an equity fund, in my judgement)
Our maximum progress usually occurred after an inflection point.
Conventional wisdom suggests that more information is a blessing and more competition a curse. I'd say the opposite is true. Coping with so much information runs the risk of distracting attention from the few variables that really matter.
If a stock is as terrific as you believe, catching it a quarter point higher is less hazardous than firing before you aim properly. Do homework! Time spent nosing around usually comes handy.
