The Greatest Investors: John Neff

Born: 1931 (Wauseon, Ohio)

Key Positions: National City Bank of Cleveland

Wellington Management Company

Vanguard’s Windsor Fund

Personal History:
John Neff is best known today for managing one of the best performing mutual funds in history, Vanguard’s Windsor Fund, between 1964 and 1995. During this period, Neff brought the fund average annual returns of 13.7%, handily outpacing the average S&P 500 return of 10.6%. Neff is known for his consistency, having beaten the S&P 500 in 22 of those 31 individual years. Neff also developed a reputation as the “professional’s professional,” owing to the fact that many other fund managers would entrust their money to him for investing.

Neff graduated from the University of Toledo in 1955 and spent the next eight years working as a securities analyst with the National City Bank of Cleveland. During this time, he obtained his MBA from Case Western Reserve University as well. Neff joined Wellington Management Co. in 1964 as the portfolio manager of the Windsor, Gemini, and Qualified Dividend funds. He retired in 1995 and subsequently wrote an autobiography, “John Neff on Investing.”

Investment Philosophy:
Neff has referred to his approach to investment as a low price-to-earnings (P/E) strategy, although some other investors have characterized him as a type of value investor. Neff prefers to describe his approach as one of buying “good companies, in good industries, at low price-to-earnings prices.”

Neff was a strong proponent of portfolio concentration over diversification. He purchased stocks in all sizes, so long as they revealed low P/E ratios. He often bought stocks on bad news, when a stock price would plunge considerably. He would also take what he called “indirect paths” to buying into popular industries; one example would be buying stock in manufacturing companies that supplied key materials to a “hot stock” company that Neff deemed to be unaffordable.

Neff consistently warned against “adrenaline markets,” those driven by momentum. Rather, he preferred to meet with a company’s management in person in order to personally assess the company’s integrity and effectiveness. Although this strategy is typically not possible for most investors today, Neff’s basic principles of rigorous fundamental analysis of a company’s financials typically are quite revealing to investors without this type of access.

As noted by Ryan Furman in his July 2006 interview with Neff for the Motley Fool, "most great investors are serious bookworms." John Neff is no exception: "He gained notoriety for taking all of his weekly Wall Street Journal copieshome for a second read during the weekend." Furman also reported that Neff reads Value Line religiously. Stock investors would be well advised, like Neff, to give these two sources of investing guidance as much attention as possible.

Noteworthy Publications:

• "John Neff On Investing" by John Neff and Steven L. Mintz (2001)

Quotes:

"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 recognized."

"I've never bought a stock unless, in my view, it was on sale."

"Successful stocks don't tell you when to sell. When you feel like bragging, it's probably time to sell."