The Hindu Business Line : Investment Nuggets

An expert investor, John Neff was called “the professional’s professional”, as many fund managers entrusted their money to him in the belief that it would be in safe hands.

That view was justified by his remarkably consistent performance. For more than 30 years, the Windsor Fund managed by him routinely featured in the top 5 per cent of all US mutual funds.

A hardcore value investor, Neff invests in companies with moderate growth and high dividends while they are out of favour and sells them once they rise to fair value.

Neff always stuck to a simple investment style based on the following seven selection criteria:

Low P/E ratio.

Fundamental earnings growth above 7 per cent.

A solid, and ideally rising, dividend.

A much-better-than-average total return in relation to the P/E ratio

No exposure to cyclical downturns without a compensatory low P/E

Solid companies in growing fields.

A strong fundamental case for investment

Below are some of his key sayings:

“Absent stunning growth rates, low P/E stocks can capture the wonders of P/E expansion with less risk than skittish growth stocks.”

“An awful lot of people keep a stock too long because it gives them warm fuzzies — particularly when a contrarian stance has been vindicated. If they sell it, they lose bragging rights.”

“A dividend increase is one kind of ‘free plus’. A free plus is the return investors enjoy over and above initial expectations.”

“As a low P/E investor, you have to distinguish misunderstood and overlooked stocks selling at bargain prices from many more stocks with lacklustre prospects.”

“When you make up your mind stick to your conclusion and above all be patient”.

“Businesses exhibiting higher growth always suffer from increased mortality.”

“Don’t chase highly recognised growth stocks. Their P/E ratios are invariably pushed up to ridiculously expensive levels. This greatly increases the risk of a sudden collapse in the share price.”

“It’s not always easy to do what’s not popular, but that’s where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognised.”

“Sell substantially when the stock goes up and hold on to your position. If the stock falls back again you may buy it back.”

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