Customer Reviews

John Neff on Investing

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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. ###

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.

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.

I was really looking forward to reading this book. In this age of sky-high P/Es, I wanted Mr. Neff's guidance on picking high-quality low-P/E stocks. After all, the man's track record speaks for itself. Unfortunately, Mr. Neff is far too terse in his descriptions of what he looks for in companies. He offers hints, but fails to deliver the analytical tools to implement his strategies. The book would have greatly benefitted from some in-depth case studies. Instead, one finds one- or two-paragraph thumbnail sketches. I suggest you skim through this book in a store before plunking down your hard-earned cash for it.

it has something important I haven't seen in other value investing books.

Other value investing books I have seen can give you the detail that you may feel lacking in this book. Certainly the second part of the book where he supposedly elaborates on his technique is rather shallow to the experienced and discerning eye. Do not expect a terribly comprehensive, technical case study approach in this one. It is--as he state--more a conversation.

The third section though is what makes this book intriguing for me. It is something I haven't come across yet and is what redeems this book. Here you have a respected investing master giving a journal like account describing how he applied his investment methodology and the key factors he took note of in the changing environments in which he applied them. Perhaps someone who has intensely studied the stock market the past 30 years may not get much out of it but for someone who hasn't, this offers unique insight on how to deal with all sorts of market conditions. Other books may be more analytical and may give you all sorts of formulas and benchmarks to select stocks but what Neff is giving in this book is his experience as a value investor and I cannot help but feel that is even more valuable. A simple illustration of the value of this is that it gives an actual real account of how long it actually took for his low-PE method to payoff during the early 70s which is a lot more convincing than saying ad nauseum "you have to invest for the long term" without warning that you might have to live for a year or more with a 17% loss and that that is part and parcel of the strategy. He gives his sterling precedent for you to follow, and in his telling, an idea of the pitfalls and ways of dealing with them.

I cannot help but feel that Neff could have communicated this all more clearly or found some way to relate his ideas better--and that is the reason I don't give it 5 stars--but if you are willing to sift through his accounts you'll undoubtedly find a wealth of investing wisdom.

To any who doubt: This book was written in 1999 and towards the end he says that if the growth stocks of the Nasdaq were to stumble, as he thought they would have to, the kinds of things he would be looking at would be REITs, housing stocks, financials, and energy. Boy I wish I had read this sooner and followed his advice! Aside from heathcare and tobacco, he seems to have gotten everything else right. How many of us would have known what to get into? Perhaps even more interesting: how would we have arrived at the answer?

I had read this book over a year ago, when I was first learning about Value Investing as a long-term technique. I first heard of John Neff in a cover story interview by Barron's in the second half of 2002 (I'm not sure when, exactly). He proclaimed in that issue that Citigroup was a once in a lifetime buy in the high $20's / share, and that there were many stocks at attractive values. Well, he turned out to be correct. In subsequent issues of Barron's, his reasons for buying stocks that always seemed to be out of favor at the moment have been consistent with the methodology explained clearly in this book.

"John Neff on Investing" is, in my opinion, a better book about value investing than the venerable "The Intelligent Investor" by Graham. The latter may be a classic and a favorite of Warren Buffett, but I found the former to be an exceptional communication of "Contrarian" investing principles.

I would recommend finding a copy of this book, along with Lynch's "One Up on Wall Street" and O'Neill's "How to Make Money in Stocks" as very readable representations of different approaches one can take to investing in individual stocks.

As many have already pointed out; Neff's record speaks for itself. But what his book does is give you an idea of how he achieved his results throughout various economic & political cycles. Most of the book reads like a chronological journal. This gives the reader, and hopefully many new investors, an idea of how much stock valuations, and peoples attitudes towards them, can & do change. For example, in '78 the Windsor fund was valued at 5.6x earnings (an implied earnings yield of 17.9%), with an estimated growth rate of 9.7%, & current yield of 5.5%. More tantalizing is the company specific valutions he writes about. Such valuations sound absurd by todays standards, but after following Neff during his career, hopefully some readers may realize that today valuations may be just as crazy.

Along with some recent market history (the last 30 yrs.), Neff imparts to the reader the importance throughout his career of buying low P/E stocks & always focusing on the price paid for each company.

All in all a very good book & most certainly informative for any investor.

John Neff on Investing is a must read for any serious investor. I myself have read many MANY investment books written by (or on behalf of) masters such as Buffett, Fisher, Graham, Lynch, etc, but none has been more influential to my own investment style than John Neff.

Like the contrarian himself, Neff's book is somewhat different from the usual. For the most part, it reads like a journal. Although I personally found it extremely practical and enlightening. Most importantly, Neff reveals how a master like himself thinks. By and large Part 2 is the best - I constantly re-read that section over and over again.

Since reading his book, I have profited significantly. Low P/E investing and Total Return Ratio is now the cornerstone of my investment style. Good luck to all!

First up, for those of you who haven't heard of John Neff - he was in charge of the Windsor Fund in the US for 31 years. It beat the market for 25 of those 31 years and beat the S&P 500 by more than 2 to 1. In other words - he has street cred as an investor. In fact, he's right up there with Peter Lynch as a genuine guru of fund management.

Cutting to the chase, I would say that this book is well worth reading but not as good as either of the two Peter Lynch books (One Up on Wall Street and Beating the Street). It is written in a chronological style and starts out with a bit of a tour through Neff's early life before getting to the good stuff - his days at Windsor. He starts out by setting out what his main investment principles are:

Low p/e ratio
Fundamental growth > 7%
A decent (and ideally growing) yield
Superior relationship of total return to p/e paid
Solid companies in growing fields
Strong fundamental case

Up to here I thought the book but great. Neff sets out what qualities it is that he looks for in a company. But the final third of the book is basically a year by year tour of the most important buys and sells in the Windsor portfolio during Neff's tenor. I found this a bit unsatisfying because Neff never really set out why something was bought or sold and how it was that a company did or didn't come to meet his principles.

The most interesting thing that I took from the book was that Neff never fell in love with stocks and never bought something with the intention of holding it forever. His style was to hunt out bargains or hidden value stocks and buy them at low p/e ratios. Once the hidden value had been "outed" and the price had caught up with Neff's view of the true intrinsic / fair value, he would sell. In other words he would trade in and out of stocks all the time - it wasn't uncommon for him to hold a stock for 6-12 months before selling it.

If you've read a lot of books about value investing, then you may not get that much out of this book, although I did like reading it. The reasoning for buying value stocks is well described, with plenty of examples of why particular securities were bought and sold, which I found to be useful and interesting. One would need to learn more detailed security analysis from other books, however, since this book doesn't teach you things like balance sheet and cash flow analysis etc. I'd also recommend The Intellegent Investor, and Graham and Dodd's book Security Analysis.