John Neff on Investing

by John Neff

John Neff is a life-long contrarian, proving time-and-again over the past three decades that bucking the system can pay off big. During his illustrious career as a money manager, Neff flew in the face of conventional wisdom by consistently passing over the big growth stocks of the moment, in favor of inexpensive, under performing ones-and he usually won. During his thirty-one years as portfolio manager for Vanguard's Windsor and Gemini II Funds, he beat the market twenty-two times, through every imaginable stock market climate, while posting a 57-fold increase in an initial stake. When Windsor closed its doors to new investors in 1986, it was the largest mutual fund in the United States.

Now retired from mutual fund management, Neff is finally ready to share the investment strategies that earned him international recognition as the "investor's investor," and made him the one to whom other money managers come to manage their money. In John Neff on Investing, Neff delineates, for the first time, the principles of his phenomenally successful low p/e approach to investing, and he describes the strategies, techniques, and investment decisions that earned him a place alongside Warren Buffett and Peter Lynch in the pantheon of modern investment wizards.

Packed with solid advice and guidance for anyone who aspires to using Neff's unique brand of value investing, John Neff on Investing offers invaluable lessons on using price-earnings ratios as a yardstick, to zeroing in on undervalued stocks, interpreting earnings histories and anticipating new market climates. A narrative of Neff's early days-My Road to Windsor-reveals the extraordinary mindset and humble circumstances that shaped his winning investment philosophy. By reproducing excerpts from his personal investment diaries, this book offers a unique opportunity to watch Neff in action over the years. A faithful, quarter-in-quarter-out chronicle of a life on Wall Street, the diaries provide unprecedented insights into the thinking behind some of his best (and worst) investment decisions, while tracing the evolution of his innovative investment style.

The first book to fully reveal the long-heralded investment strategies of a Wall Street genius, John Neff on Investing is must reading for investors, brokers, traders, and bankers of every kind.

JOHN NEFF, until his retirement in 1995, was Senior Vice President and Managing Partner of the Wellington Management Company, the Windsor Fund's investment advisor.

S.L. MINTZ, is New York Bureau Chief of CFO Magazine, a publication of the Economist Group dedicated to the latest financial thinking and how it is being implemented in today's markets. His other books include Beyond Wall Street (Wiley, 1998) and Five Eminent Contrarians.

Genres: Finance, Business, Biography, Nonfiction, Money

288 pages, Paperback

First published March 30, 1999

Reviews

[Lakshmikanth Reddy · Rating 3 out of 5]

When anybody who succesfully managed a fund for 31 years, through changing fads and market regimes writes a book, it begs to be read by all practioners of his art. I picked this book with much hope, expecting at least some binding context-free conclusions to be had - particularly some original ideas. I found nothing earth shattering, and dare say a little dissappointed - not for reading it, but for delivery that was much less than the potential. John Neff talks about investing in 60s, 70s and 90s in US equities and his own version of low p/e investing,employing a tool that is largely an inversion of PEG ratio (what he calls total return ratio). What I would have liked him to discuss more are i) portfolio weighing process - where as book is predominantly focussed on stock-picking and ii) how he coped with various stakeholders when he underperformed, which he did roughly for a third of the time.

Any book that talks about how- I-got-it-right-under-my-circumstances has limited appeal, reflecting on limitations of his own approach would have made this book better - every investment rule underpeforms under some condiions and a portfolio manager ought to be aware of that.

There is much more to portfolio management, even if it has value tilt, than mere stock-picking and I wish John spent a lot of time on that. His idea of measured participation is a very good idea; I wish John was more generous in building this further. Too many money managers think portfolio management means stock-picking only and this book unfortunately may reinforce their prejudice and myopia.

All in all readable, deserves to be finished quickly without thoughtful pause; not a classic.

[Viktor Nilsson · Rating 2 out of 5]

John Neff is arguably one of the most successful mutual fund managers. So why wouldn't you want to read his book?

Well, first of all, it's unbelievably boring. Reading this book is about as exciting as reading the instruction manual for your dish washer. Listening to the audiobook doesn't make it any better, I constantly found myself losing focus.

Secondly, he contradicts himself: He starts of by saying that his style is bottom-up low-P/E investing. When enumerating examples of the investments he made (only the profitable ones!), it often turns out that there was some macro call behind it: commodity prices, car sales, exchange rates, etc. And each example is so short, that you can't really learn anything from most of them.

The style of this book is somewhere in between The Intelligent Investor and One Up On Wall Street: How to Use What You Already Know to Make Money in the Market. In terms of quality, however, it doesn't quite get there. You can learn something from reading this book, but after reading many other books on investing I could barely find anything unique here. Read it if you want to know about John Neff, specifically, or if you're just looking for some inspiration.

[Carl Sandberg · Rating 3 out of 5]

John Neff, a former fund manager of Vanguard’s Windsor Fund, fairly convincingly lays out the merits of "low p/e investing" (or perhaps value investing) in his eponymous book. It consists of three parts: 1) early life biography, 2) investment philosophy, and 3) his investment record. The second part of the book is too superficial and the third part too self-congratulatory. However, his record is undoubtedly very strong and he provides us with another convincing example of the merits of Graham-Dodd-Buffett-like investing. Neff managed the Windsor Fund from 1964 to 1995. During this period, Neff brought the fund average annual returns of 13.7%, outperforming S&P 500's annual 10.6% return. He beat the index in 22 of those 31 years.

His investment philosophy is based on finding good companies with low price-to-earnings ratios. He said that he never bought a stock that was not on sale. He also believed that careful portfolio concentration was necessary to produce alpha. He often bought stocks that were out of favor in the market, sometimes because of bad news or because they were not in "hot" industries. He would, however, sometimes buy into hot industries by investing in suppliers to these industries. He believed in rigorous analysis, spending his weekends rereading the Wall Street Journal papers of the week. His consistency and intellectual honesty in his investing approach make the book a worthwhile read.

[Hbombme · Rating 4 out of 5]

A little scattered but useful insights into John's investing approach with some punchy lines. I'd say most of the book's value is in its first 135 pages. General takeaways here:
- Fund went as much as 20% to cash, but no more, since John was running an equity strategy; presumably his underlying investors could go to cash themselves.
- He neatly incorporated growth into p/e multiple considerations. Incorporating that metric, he sought to invest into businesses trading at a discount to market with "free plus" opportunities (option value/unimagined new opportunities)... "We preferred stocks whose total return [earnings growth + yield], divided by the p/e, exceeded the market average by 2:1." Thus he was more of a relative value investor with appreciation for difficulties in penciling out the unknowns. "Growth rates less than 6% or exceeding 20% seldom made the cut. Higher growth rates entailed too much risk for our appetite."
- He looks like a pretty high turnover guy, who nonetheless compounded at higher rate than the market.

Additional quotes I liked:
- "It was not enough to be prudent. You need to apply some imagination and flair..."
- "By playing safe, you can make portfolio so pablum-like that you don't get any sizzle. You can diversify yourself into mediocrity."
- "Most investors are great at extending straight lines." And related, "Warning signs often cry for attention long before an inflection point erupts. When investors far and wide agree, and the media trumpet that opinion, watch out."
-"Investing is not a very complicated business; people just make it complicated. You have to go from the general to the particular in a logical, sequential, rational manner."
-"If the stock is as terrific as you believe, catching it a quarter point higher is less hazardous in the long run than firing before you aim properly."
-"There is a thin line between being contrarian and being just plain stubborn."

[Chris · Rating 4 out of 5]

The Skinny: An investing book with plenty of useful insights by a legendary fund manager, however the second half of the book could be cut or ignored.

The Good: John Neff is my favorite of the legendary fund managers, I like him even more than Peter Lynch. His dedication to analytical rigor, general market knowledge, and contrarian thoughts reverberate especially well. Most of his tenets are highlighted and easily understood in this book.

The Bad: The second half of the book is just a year by year summary of Windsor, you can skim this as it takes up a lot of space and does not add much value to the reader. Also, like most managers of that era, their techniques are just harder to implement in the pervasive digital age and dividends are not nearly as vital anymore. Still, many of his thoughts are applicable it just requires a lot of searching. There will always be bargain bins in the market, and he will help you find it.

[Hiro · Rating 4 out of 5]

John Neff, a value investor, describes how he became an investor, what to watch out for in investing, and what happened to him as a fund manager. The book is modest in its investment tips, and is mostly about funds. Usually, when selecting stocks, we look at P/E ratios and earnings forecasts, but John Neff's concepts of total return and total return ratio are easy to use because they quantitatively evaluate the degree of value of a stock when considering when to buy.

[Nicholas · Rating 2 out of 5]

So the book is basically:
Part 1 - Early life biography
Part 2 - Investment philosophy with very little detail
Part 3 - History of his life in the stock market, but not nearly as strong in the teaching lessons as say Peter Lynch's.

It's fine. It gives you a little taste of his philosophy, but it doesn't really give the dive or detail on the philosophy that other investment books do.

[Tim Traver · Rating 5 out of 5]

5 stars for the first half of the book and 3 stars for the second half. Learned a great deal from his investment approach in first half. Second half was much more technical and dryer reading. Overall great book.

[Celena · Rating 3 out of 5]

I don't know that I learned anything that will stay with me, but it was informative. It's historical account read like a Wikipedia page.

[Bobby Wales · Rating 4 out of 5]

Nicely written autobiography/investment treatise. John Neff intermingles his investment theory and history in this easy-to-read book. He combines lessons about life with lessons on investing.

[Alessandro Orlandi · Rating 3 out of 5]

I found a little bit boring the history of his deal. I thought would have been better few example and how he came about them and his reasoning rather than a full history of them

[Cabinet of Curiosity]

A book for professional use..Revisit some basic concepts for work

[Calisto · Rating 2 out of 5]

a good book.. but not for our times.. this is circa 1980s

[Jeremy · Rating 5 out of 5]

Part biography, part investment guide, part memoir. John Neff was one of the all-time great mutual fund managers and to get a glimpse at his thought process is a treasure in and of itself.

[Joel Gray · Rating 2 out of 5]

AN AWFUL LOT OF PEOPLE KEEP A STOCK TOO LONG BECAUSE IT GIVES THEM WARM FUZZIES - PARTICULARLY WHEN A CONTRARIAN STANCE HAS BEEN VINDICATED.

Neff managed the Windsor Fund for 30 years and averaged 3.5% gross alpha, or 3.15% net after 25bp fee. It closed to new investors in 1985 and was the largest mutual fund in the US.

The main reason he was so effective at contrarian investing was discipline. He was able to go against the tide as he knew more about his companies.

He was original, independent and rational in evaluations and was a hard worker.

Windsor investment elements; low PE, fundamental growth >7%, yield protections, no cyclical exposure unless very low price, solid companies in growing fields, strong fundamental case.

Cyclical stocks normally comprised 33% of fund. Would forecast normal earnings for the cyclical without forecasting when normal earnings would surface exactly.

Margins don't grow to the sky. Eventually, attractive companies must demonstrate sales growth.

Windsors portfolio was at 5.2x trailing and DY was 5.7% in 1974. The fund did 54.5% in 1975.

[Darius · Rating 3 out of 5]

A nice book that shows a sensible investing style.
While the book is full of good decisions, I would have preferred the mention of more of the mistakes that were made, and an analysis of them.

Also, I found that the chronological style was a bit dry. It does not allow for a way to pull the threads together into a mental model. And, finally, the mental model is what is important if one wants to benefit from this book. I think the book imposes on the reader much of the task of building such a model.

[Robert]

I listened to this audio book and liked his tendency to as he put it "argue with a signpost" and that you need to study like a doctor to be a good investor. I also like that he has never worked on "Wall Street."

[Aharon · Rating 2 out of 5]

Some interesting nuggets, plus lots of pages that are basically diary entries that basically say: "I bought this and made money. How awesome is that?"

[Major Doug · Rating 3 out of 5]

Listened to this book: was informative; not as good as 'forbes on investing..'; however, was worth the listen.

[C · Rating 3 out of 5]

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