The Hindu Business Line : Investment Nuggets

Known as the “dean of small-cap investing”, Ralph Wanger was the President of the Chicago-based Acorn fund. It was one of the top funds of the age, which returned 17.2 per cent annually between 1970 and 1998 — a return higher than that generated by the S&P 500 index then. Ralph Wanger was known for his theme-based investment in smaller growth companies.

He joined the investment firm Harris Associates as an analyst and later grew to head the company’s fund. He was also the founder of Columbia Wanger Asset Management.

Even prominent portfolio managers of today would want their personal wealth to be managed by Wanger. In his book A Zebra in Lion Country, Wanger suggested a few guidelines for stock market investors:

Insist on financial strength;

Insist on fundamental value;

Look downstream for the best profits;

Concentrate on spotting trends that will last for at least four-five years;

Sell only reluctantly.

Below are a few golden nuggets from him:

“First I determine themes that will be played out over the next several years. Then I identify groups of stocks that reflect those themes.”

“Invest in the businesses that will benefit from new technology rather than in the technology companies themselves.”

“Be long-term holders of smaller companies with financial strength, entrepreneurial managers and understandable businesses.”

“If you’re looking for a great investment for five years or 10 years or more — then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge.”

“Investors behave like zebras in lion country — if they stay with the herd they have to settle for megre pickings. If they want richer rewards at the outer edge, they have to take greater risks because that’s where the lions lurk.”

“A good company is not necessarily a good stock unless it is attractively priced. Look for companies that are cheap in relation to their earnings-growth potential.”

“From our point of view, if you have a company which is uniquely tied up with one personality, and something happens to it where that personality is not going to be effective, the reason to own the stock is strongly diminished.”

“Buy the stocks of small companies below their economic value, let the companies grow, and resell them as proven successes at full economic value. Individuals often sell small companies below their economic value and buy mature companies at full value, thus providing the other side for our trades.”

“The best assurance of continued growth, and high profit margins, comes back to this: The company should have a special niche in the marketplace so that sales don’t depend on offering a commodity item at a lower price than the competition’s. It should, to a degree, dominate that niche. The best company in a marginal industry is worth more than the third-best company in a major industry.”

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