John Neff on Investing [Hardcover]

John Neff (Author)

Book Description

Publication Date: October 22, 1999

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.

Editorial Reviews

Amazon.com Review

In the investment-management business, it's best to take bows quickly. Unless, of course, you're John Neff, a living legend, who as manager of Vanguard's Windsor Fund beat the market in 22 out of 31 years. Neff grew Windsor to become the largest mutual fund by combing the bargain basement for quality merchandise and selling as other investors caught on. In John Neff on Investing, he explains how he scoured the daily list of stocks hitting new lows, the "dusty rag and bone shop of the market," to find out-of-favor companies with low price/earnings ratios, those growing faster than seven percent a year, that paid generous dividends. He shows how to distinguish misunderstood and overlooked stocks from those with lackluster prospects.

Shunning the terms value investor and contrarian, he tells us he prefers to be known simply as a "low-p/e investor." "Contrarian investor suggests a stubborn nature," he says, "and there's a thin line between contrarian and being just plain stubborn." Memory in the stock market is notoriously short. "Remember the lessons of the past as they tend to repeat themselves," Neff says. "You cannot become a captive of historical parallel, but you must be a student of history." He takes us back to the early '70s, the "silly season" he calls it, "when investors emphasized a handful of glamour stocks at the expense of the market.... Hypnotized by rising market levels, investors lost sight of fundamentals ... and a dazed and confused public became persuaded that investing is easy." The toughest investment decision is the decision to sell. "Successful stocks don't tell you when to sell," says Neff. "When you feel like bragging, it's probably time to sell." He quotes a French proverb: "Buy on the cannons, sell on the trumpets."

John Neff on Investing begins with an insightful autobiographical sketch, but the marrow of this book is the journey through Neff's investment diary while managing Windsor. He takes us through three turbulent decades and dissects in detail his investment successes and failures. Relying on relentless application of his low-p/e strategy, abetted by attention to fundamentals and a liberal dose of common sense, he repeatedly rode stocks from under- to fair valuation, most often leaving the overvaluation thrill ride to braver souls.

Neff explains his concept of Measured Participation, a sort of asset-allocation strategy for low-p/e investing, and he shows that while difficult in today's high valuation market, constructing a portfolio guided by his methodology is still possible. Anyone with an interest in investing will enjoy learning at the feet of this master. --Scott Harrison

From Publishers Weekly

From 1964 to 1995, Neff managed the large Windsor mutual fund, which consistently beat the stock market's average returns. In this wise and engaging volume, Neff and finance writer Mintz (Five Eminent Contrarians) team up to explain how Windsor did it and how smaller-scale investors might duplicate Neff's success. The result is half financial advice, half autobiography. Early chapters describe Neff's difficult family life in Texas and Michigan, his navy years and his early job in a Cleveland bank. Thereafter, Neff's investment advice alternates with year-by-year analyses of the market and of Windsor's performance. Neff and Mintz together craft clear, forceful prose, studded with personal asides: at the bank in Cleveland, "I was not inclined to play by their rules. Instead of bankers' pinstripes, I wore sport coats." Neff's core precept is simple: buy stocks that look bad to less-careful investors and hang on until their real value is recognized. This means seeking solid companies whose price/earnings ratios look low. "I've never bought a stock," he declares, "unless, in my view, it was on sale." That's not new advice, but Neff's success proves that he knows how to apply it: patience and willpower, he informs us, matter as much as (though not more than) rapt attention to business news and company reports. Bad analysis had almost sunk the Windsor fund when he arrived; Neff's first years there saw "go-go practitioners" and "adrenaline funds" temporarily surpass his returns, then collapse while Windsor persevered. Today's NASDAQ and Internet stock booms, Neff warns, looks like trends from ages past: they, too, will eventually weaken. Readers seeking up-to-the-minute stock tips or get-rich-quick advice may not like the message Neff delivers, but cooler heads seeking to make money over the long haul should enjoy, and benefit from, finding out how Neff invested very, very well. (Jan.)
Copyright 1999 Reed Business Information, Inc.

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Product Details

• Hardcover: 288 pages
• Publisher: Wiley; 1 edition (October 22, 1999)
• Language: English
• ISBN-10: 0471197173
• ISBN-13: 978-0471197171
• Product Dimensions: 9.3 x 6.3 x 1 inches
• Shipping Weight: 1.3 pounds (View shipping rates and policies)
• Average Customer Review: 3.8 out of 5 stars  See all reviews (23 customer reviews)
• Amazon Best Sellers Rank: #130,202 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

33 of 33 people found the following review helpful:

5.0 out of 5 stars Wisdom of the Ages, December 13, 1999

By 

Randy N. Myers - See all my reviews

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This review is from: John Neff on Investing (Hardcover)

Mutual fund managers who can beat the market for a couple of years are a dime a dozen. Mutual fund managers who can beat the market for a couple of decades are practically unheard of. Which is why almost every investor has heard of John Neff. In his 31 years as a bargain-hunting fund manager, he beat the market in 22 of them. By the time he retired a few years ago, a dollar invested in his Windsor Fund in 1964 would have returned $56, versus $22 for the S&P 500.

In JOHN NEFF ON INVESTING, one of the true masters of Wall Street tells us exactly how he compiled this amazing record. With collaborator Steven Mintz, he explains what kinds of stocks he looked for (in a nutshell, low p/e stocks of companies growing earnings in excess of 7% annually, often paying a respectable dividend) and a long list of qualifications concerning just what makes one low p/e stock better than another. (A low p/e company growing too fast is suspect. A dividend yield isn't always a must. Cyclical stocks should offer lower p/e multiples. The list goes on and on.) Just as importantly, Neff shares the wisdom of a lifetime in the investment business, outlining the pitfalls that can trap the unwary investor. (See Chapter 9, CARE AND MAINTENANCE OF A LOW P/E PORTFOLIO.

The meat of Neff's discussion of his investment style is included in the middle third of the book. Armed with this advice, an investor can easily begin to screen the stock market for companies that fit the Neff mold. (MSN MoneyCentral Investor, at www.investor.msn.com, offers a powerful and free screening tool. There are many others.)

Elsewhere, Neff devotes the first third of his book to talking about his formative years in the investment business prior to taking over the Windsor Fund. In the final third of the book, he provides a journal describing his investment activities at the helm of the Windsor Fund. He talks about critical buy-sell decisions, why he made them, and how they worked out ... and also describes the ever-changing market environment in which he was making them. (Reading this book is a great reminder that large-cap growth stocks don't always lead the market, as they have for the past five years. As such, it should help investors be better prepared the next time market leadership changes.)

If you had the chance to sit down and talk with John Neff for a few weeks about his career and his investment style, what you would get, though likely not so well structured, would be this book. I'd love to spend those weeks with John Neff. But I wouldn't give up the chance to have read this book, either. Few investors have achieved more than Neff, and his story deserves a place on any investor's reading list. ###

36 of 37 people found the following review helpful:

3.0 out of 5 stars Interesting but expected better, April 25, 2000

By 

Doug Smith (Warminster, Pa.) - See all my reviews

This review is from: John Neff on Investing (Hardcover)

I was looking forward to reading this book to provide some help in managing my mostly value oriented stock portfolio but was disappointed. The middle of the book (Chapt. 7) provides some useful tools and ideas on screening for value stocks but Part Three which chronicles Mr. Neff's thirty one year management of Windsor confirms that his strategies are strictly for 60 hour a week,eat,breath and die the stock market professionals. Application of ideas by Peter Lynch from "One Up on Wall Street" and "Beating the Street" are a piece of cake compared to this. Mr Neff's strategy appears to involve constant combing of the stock market universe to identify stocks reaching their absolute lowest PE ratio, buying, then holding until they reach "fair value" which sometimes can occur relatively quickly. Entire positions are then eliminated to be replaced by new stocks reaching their lowest PE ratio. Almost perfect market timing of both the buy and sell sides of his strategy look to have been a crucial part of Mr. Neff's success at Windsor. To Mr. Neff's credit, he does not claim that his strategies can be well adopted by the average investor as Mr. Lynch does. We are then left with a book that serves more as a vehicle for Mr. Neff to point with pride to his record at Windsor and a history of his early personal life.

Mr. Neff's idea of "inflection points" in the market is useful and in Chapt. 14 "Deja Vu" where he covers the current market he appears to predict the recent correction in NASDAQ and internet stocks. The book is unusually silent on 1994-95, the last two years of his management when Windsor underperformed the S&P 500 although earlier periods of underperformance are well covered. The book although published in 1999 is to no surprise silent on the abysmal underperformance of Windsor from 95-99 by Mr. Neff's disciple Mr. Freeman although Mr. Freeman is highly praised in the book. The book is an interesting narrative on management of a mutual fund and contains some useful information on the market and stock selection but not nearly as helpful as hoped for.

13 of 13 people found the following review helpful:

5.0 out of 5 stars Nitty Gritty of Value Investing, December 6, 1999

By 

John Thackray "jthackray" (New York, NY USA) - See all my reviews
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This review is from: John Neff on Investing (Hardcover)

There are thousands of books that give investment advice: "buy this", "sell that", etc. John Neff reveals how a successful contratian investor actually does the homework, the analysis, and makes and sticks to his judgements. There are no pat formulas here, but wonderful display of a great financial reasoner doing his stuff in all kinds of market conditions. Neff's returns from 1964 to 1995 were double the S&P's because of his way of interpreting the economic scene and his determination to find values where others saw dreck. His story is described in fast-paced language and a wry sense of humor. Some people might argue that today's market conditions are unique, so what's the point of dredging up and discussing the market of 10 and 15 years ago. And okay "value investing" is not very fashionable, since recent value funds have under-performed against the averages. But that is precisely the kind of opportunity that Neff just loved to wade into, when value stocks were a bargain. After the current technology and IPO frenzy has subsided, the Neff approach will be what investors turn to. This is not a how-to book: better it turns on a light inside the mind of one of the few professional investors to beat the market over many decades.