December 15, 2018

Kent Janér

December 15, 2018/ Magnus Angenfelt

Investor profile at InvestingByTheBooks: The book The World’s 99 Greatest Investors: The Secret of Success provides a unique opportunity to learn form the most prominent investors globally. In the book they generously share their experiences, advice and insights and we are proud to present these excerpts. Magnus Angenfelt, previously a top ranked sell side analyst and hedge fund manager, will be presenting one investor per month. For those who cannot wait for the monthly columns, we strongly recommend you to buy the book. The investor himself writes the first section below and then Angenfelt describes the background of the investor and comments on his investment philosophy. Enjoy.

Successful investors have two important abilities. One is the ability to identify interesting and potentially profitable investments. This is grounded in a well thought-out analysis of macroeconomic developments, a stock, or some other investment. If the market valuation is too high or too low in relation to what the analysis indicates is correct, things become interesting. The probability of finding a good deal increases if you also understand the reasons for this disparity. If, on the other hand, there is no apparent reason for the disparity, there is a greater risk that the market is right, and you have missed something in your own evaluation. Financial prices assume predictions about the future, but predictions are considerably more uncertain that most of us would like to believe. Accepting and locking yourself into a particular scenario that appears to be reasonable right now is not a good way of handling insecurity. It is better to think in terms of a variety of possible future scenarios, weighing up the possibility of them occurring. The market price should then reflect a reasonably balanced assessment of these scenarios. Because new information is forever becoming available, you should adjust your weightings over time, and therefore also what you think a reasonable market price.

The other ability of successful investors is to identify and handle risk, which is mostly aimed at reducing the chances of catastrophic results from your investments. The worst possible result is so bad that you no longer can, may, or wish to make new investments. Rule number one is to never risk ending up in this situation. Further, it is important to understand which risks you are exposed to, and actively decide whether they are the ones you wish to carry, or if there are particular risks that should be insured or protected against. In many cases it can be wise, for the right price, to have a general insurance against unexpected events or macroeconomic shocks. Mathematical models can be very useful for measuring risk, but they should be combined with practical experience of financial markets. Excessive belief in models, which are of course simplifications of reality, can be downright dangerous. Good judgement and common sense are required, both of which are often underappreciated qualities.

If you as an investor want high riskadjusted returns over a long period of time in a changeable world, you will need to know about financial theory and understand macroeconomic structures and relationships, not to mention politics, including central bank policy-making. Without a certain understanding of these topics (which does not necessarily mean expert knowledge) there is a risk of becoming a one-trick pony, and making the same investment over and over again, despite the fact that reality has changed so that the factors and relationships which ensured success in the past are no longer valid.

Hard work and a passion for what you do are definitely important factors in success!

BORN Laisvall, Sweden 1961.

EDUCATION Janér graduated from the Stockholm School of Economics in 1984.

CAREER His first job after graduating was as a market maker in government bonds for Svenska Handelsbanken. After two years he switched to a similar role at Citicorp in London, working with British gilts. In 1989, Janér started working for the Swedish bank JP Bank with responsibility for bonds and the bank’s investment strategy. In 1998 he founded the hedge fund Nektar Asset Management, where he has been head of investments from the start, and is now also chairman of the board.

INVESTMENT PHILOSOPHY Janér runs Nektar, one of the decade’s most successful hedge funds in Europe. The fund is market neutral and looks for misvaluations between various financial instruments, which are advantageous from a risk perspective. The positions can also be based upon a macroeconomic theme (lower growth, higher inflation, higher volatility, etc.). The emphasis is on interest rate market. The fund usually holds several hundred positions and is characterized by relatively low risk.

OTHER Janér made his name by being one of the most successful investors to take positions on the falling Swedish krona in 1992. Today, Nektar manages over $4 billion. Among the large number of international awards received over the years, for three years in a row Hedge Funds Reviews named Nektar the best market-neutral fund in Europe over the previous ten years. He is a member of the scientific advisory board of the Stockholm Institute for Financial Research, and his hobby is deep-sea fishing.

Source: Kent Janér; Nektar Asset Management.

November 24, 2018

Albert Frère

November 24, 2018/ Magnus Angenfelt

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· Perform only those investments that you understand.

· I suffer from insomnia when I am in debt.

· Amat victoria curam – Victory favors those who take pains.

· In every danger, an opportunity.

BORN Charleroi, Belgium 1926.

EDUCATION Dropped out of secondary school.

CAREER Aged 17, after his father died, he took over the running of the family’s nail merchant business. Aged 30 he began investing in steel factories which, when he sold them in late 1970s, became the foundation for his wealth. He continued to buy and sell, mainly Belgian national companies, and has today an empire of media, oil, and utilities.

INVESTMENT PHILOSOPHY Frère has displayed impeccable timing in his dealings. His strength and strategy predicting changes is business structure, political impact, and long evolutionary trends in industries. He was, for example, the pioneer in Europe on cross-border deals. He foresaw the single European market and the consolidation that would be one consequence of the EU. The valuation is not always the crucial point for him in making decisions, and he invests in both public and private companies. This investment strategy demands specific skills and contacts, and is not easy to apply. He is described by making money by exercising stone cold patience in a serene manner in connection to being a workaholic.

OTHER Frère keeps himself well out of the limelight. He rarely gives interviews (I thank him for granting me one!) or speaks in public. According to Forbes his wealth is an estimated $3.7 billion in 2013, which makes him the richest individual in Belgium. He is nicknamed The Warren Buffett of Belgium. At the age of 85 he made one of his biggest deals so far taking the investment conglomerate CNP private. He is a hunter, athlete, and lover of fine wine. Frère took up golf in his seventies.

Sources: Albert Frère; Wikipedia; Forbes.

October 14, 2018

Carl Icahn

October 14, 2018/ Magnus Angenfelt

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There are no words in our vocabulary that define the common quality that all very successful people share, but the closest words would be ‘passion’ or ‘obsession’ relating to what they do. A second quality these people share is a lack of hubris when achieving a great victory in a game or investment. When they are victorious they do not believe they are geniuses, rather they understand how much luck is involved. As Rudyard Kipling put it, ‘if you can meet with Triumph and Disaster and treat those two impostors just the same’.

A third quality that I believe all great investors share is the ability to recognize the difference between a ‘secular’ and ‘cyclical’ change in companies they have carefully studied. If a company they have studied and believe in is down because of a cyclical change, successful investors use the opportunity to purchase as much as they can as quickly as they can. They do not care and are not influenced or frightened by market conditions, etc. However, if a company is in trouble due to ‘secular’ change, successful investors will take their losses and back away.

The ability to recognize secular and cyclical cycles cannot be taught, in my opinion. Rather, it is an instinct or talent that has been honed over many years of arduous work. In other words, the great investors, just like the great champions in other fields, can divorce themselves from their emotions and just play the game.

BORN New York, USA 1936.

EDUCATION He studied philosophy at Princeton University in 1957 and at the New York University School of Medicine, but he left without graduating.

CAREER Icahn began his career on Wall Street in 1961 as a registered representative with Dreyfus & Company. Aged 32 he bought a seat on the New York Stock Exchange and started Icahn & Co. Inc., a brokerage firm that focused on risk arbitrage and options trading. In 1978, he began taking substantial controlling positions in individual companies. Today, he is chairman of Icahn Enterprises, a diversified publicly listed holding company engaged in a variety of businesses, including investments, metals, real estate, and consumer goods.

INVESTMENT PHILOSOPHY Icahn is the most successful and famous stock market activist in the world, but his roots are in contrarian value investing. His strategy is to invest in beaten-down assets that nobody else wants, usually out of bankruptcy, then fix them up and sell them when they are back in favour. When studying a firm’s structure and operations to explore the reasons for any disconnect between the company’s stock price and the true value of its assets, ‘for the most part the reason for this disconnect is management’, as he explains it. To take the steps necessary to seek to unlock value he uses tender offers, proxy contests, and demands for management accountability. When valuing companies, he looks at replacement cost, break-up value, cash flow and earnings power, and also liquidation value.

He operates with almost all market instruments – including long and short equities and bonds, bank debt and other corporate obligations, options, swaps, etc. He regards consensus thinking as generally wrong. ‘If you go with a trend, the momentum always falls apart on you’ says Icahn. In contrast to the general view about activists, he is more of a long-term investor. The focus is on capital structure, management, and finding the best long-term owner for the assets.

OTHER Icahn Enterprices has revenues around $20billion and almost $30 billion in assets. In 2008, Icahn launched the Icahn Report, which campaigns for shareholder rights and encourages them to shake up the management and boards of underperforming companies. He has through his different vehicles taken positions in various corporations over the years and very seldom failed to wring out changes and higher valuation. Some of the most famous battles were RJR Nabisco, Texaco, TWA, Phillips Petroleum, Western Union, Gulf & Western, Viacom, Blockbuster, Time Warner, Yahoo, Motorola and recently Dell. In the fight over Time Warner, where he owned about 3.3 %, he unveiled a 343-page proposal calling for the break-up of the company. In 2013 his net worth was estimated by Forbes to be $20.3 billion, making him the eighteen richest man in the world. He has been an active participant in a variety of philanthropic endeavors through Icahn Charitable Foundation, which mainly focuses on child welfare, education, and medicine.

Sources: Carl Icahn; Icahn Enterprises L.P.; Icahn Enterprises; the Icahn Report; Wikipedia.

August 12, 2018

Edward Lampert

August 12, 2018/ Magnus Angenfelt

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The idea of anticipation is key to investing and to business generally. You can’t wait for an opportunity to become obvious. You have to think, ‘Here’s what other people and companies have done under certain circumstances. Now, under these new circumstances, how is this management likely to behave?’

One of the things I try to advocate to other investors and companies is that if you can have a large long-term investor then you have the ability to run the company for the long term.

So much time and money ends up spent ensuring that the financial statements are immune from criticism that it can become much more of a distraction than a useful tool for investors and managers.

BORN New York, USA 1962.

EDUCATION Lampert graduated with a BA in Economics from Yale University in 1984.

CAREER After school he started as an intern at Goldman Sachs. Inspired by Warren Buffett’s letters to shareholders he left its risk arbitrage department in 1988 to start his own hedge fund ELS aged 26. He still serves as chairman and CEO.

INVESTMENT PHILOSOPHY Lampert defines himself as an “aggressive conservative” investor; one could also say a ‘concentrated value’ investor. He is uncommon for a hedge-fund manager in that he is a mix of investor and businessman. He is, among other things, CEO and chairman of Sears, the gigantic retailer store which is ELS largest holding and accounting for more than a third of the assets. Lampert focuses on finding companies that are seriously undervalued, and he is willing to target poorly run ones because they can produce greater returns if the right changes are made. As a result, Lampert is more hands-on with management, and the number of investments is normally below ten, although intimately known holdings are kept for several years.

Lampert’s style of investment requires a more detailed knowledge of the business, company management, and its values, than those who invest for shorter periods of time. He seems to prefer mature and easily understandable companies that generate lots of cash. He thinks past performance used as a measure of quality is wildly overrated. When investing, he focuses intensely on how their companies allocate capital to maximize returns. Lampert has significant experience investing in retail, even if his first retail investment was only in 1997. He does not have any known shorting strategy.

OTHER Lampert has carefully studied Buffett for years. He went back and read annual reports in the couple of years preceding some of Buffett’s investments: ‘Putting myself in his shoes at that time, could I understand why he made the investments?’ He has also been nicknamed ‘the new Warren Buffett’. Lampert is most famous for forming and merging Kmart and Sears into Sears Holdings. He took control of Kmart (the third largest discount store chain in the US, then with above $20 billion in sales) by buying up debt during its bankruptcy, cutting costs and by then reduce the workforce by 34 000 employees. Due to underperformance in Sears the asset under management in ELS has recently dropped from 10 to around $2,5 billion. Lambert’s earnings in 2004 were estimated to be $1.02 billion, making him the first Wall Street financial manager to exceed an income of $1 billion in a single year. Forbes estimated his wealth to be $2.9 billion in 2013. In 2003 Lampert was kidnapped, but he managed to talk himself out of the situation and was released after two days.

Sources: Edward Lampert; CNNMoney; Bloomberg; Sears annual letter to shareholders, 2008; the Third Avenue Management Investor Conference and Luncheon, 18 November 2003; BusinessWeek, 2007; Wikipedia; online.wjs.com, the performance is estimated.

July 14, 2018

Jim Slater

July 14, 2018/ Magnus Angenfelt

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The first key point is to focus on a relatively narrow area and become very expert in it.

The second and most important thing is to cut losses and run profits. Most people do the opposite – they tend to snatch profits and hug losses. In this way inevitably they end up with big losses and small profits instead of the other way around.

The third point is to concentrate on growth shares with forward price earnings ratios less than their future growth rate.

The fourth point is that I am great believer in the importance of cash flow. I always make sure that EPS are exceeded by cash flow on a regular basis. In this way I eliminate potential Enrons.

BORN Chester, UK 1929.

EDUCATION Slater left grammar school at the age of 16 and became a Chartered Accountant when he was 24.

CAREER Slater spent his first nine years after school in industry, culminating in his appointment as deputy sales director of the Leyland Motor Corporation. After successfully writing an investment column under the pseudonym ‘Capitalist’—the ghost portfolio of ‘Capitalist’ appreciated by 68.9 % against the market average of 3.6 % – in 1964 he launched Slater Walker Securities, which collapsed in the wake of the secondary banking crisis of 1973–75. Slater famously found himself to be a ‘minus millionaire’, owing £1 million more than his assets. Within a few years he repaid all of his debts with interest. In 1976 he started to invest in property and later in the mining industry as well as biotech and agriculture. In early 1990 he devised a public company statistical guide, Company REFS, for investing based on his investment principles. Since 1975 Slater has been a very active stock market investor and remains so today.

INVESTMENT PHILOSOPHY Slater is a small-cap growth stock market investor. The key figure in his investment approach is the price–earnings growth factor (PEG). A PEG of below one, with earnings growth higher than the multiple, is attractive. His approach is similar to Peter Lynch’s, and there is some debate over which of the two devised the PEG. There is, however, no doubt that Slater popularized it in the UK. In addition, Slater demands that a company should show cash flow in excess of earnings and it must have been growing for at least the last three years. Also the company should not be over-geared. His preference for small companies is based on the conviction that ‘elephants don’t gallop’, an expression that he coined. Slater mainly depends for his investments on public data; however, he requires at least three analysts’ forecasts before investing. The management’s behaviour in terms of their buying shares and being optimistic in their annual reports are also important parts of his approach. Slater has a humble attitude to the market and does not attempt to forecast which way it is going at any point in time. He regards running profits and cutting losses as a key factor in successful investment. His investment style is probably one of the most accessible in the book.

OTHER Despite not managing other people’s money, there is a lot of evidence of Slater’s investment strategy being successful. His business column and recommendations over the years have proved to be very profitable. A public fund based entirely on his principles would be up 188 % against the market’s 73 % in the last three years, and 77 % up over the market’s 7 % during the last five years. Slater is first and foremost known in the UK for trying to help the man in the street invest successfully. He has written five investment books as well as thirty books for children. He is still a very active investor and still answers questions about investing on his homepage.

Sources: Jim Slater; www.jimslater.org.uk; MFM Slater Growth Fund.

June 18, 2018

Michael Steinhardt

June 18, 2018/ Magnus Angenfelt

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Just as outright euphoria is often a sign of a market top, fear is, for sure, a sign of a market bottom. Time and time again, in every market cycle I have witnessed, the extremes of emotion always appear, even among experienced investors. When the world wants to buy only Treasury Bills, you can almost close your eyes and get long stocks.

The only analytic tool that mattered was an intellectually advantaged disparate view. This included knowing more and perceiving the situation better than others did. It was also critical to have a keen understanding of what the market expectations truly were. Thus, the process by which a disparate perception, when correct, became consensus would almost inevitably lead to meaningful profit.

Beginning at a very early age, I have made cumulatively more judgments, and more investments decisions based on the same kinds of data, than almost anyone else. This process unconsciously leads to a sharpening, a fine-tuning, that, over time, results in fewer mistakes. In this repetitious behavior, a learning occurs that is not consciously understandable but allows one to develop ‘good instincts’. Often listening to an idea led me to an entirely different conclusion to that envisaged by the proponent of that same idea, whose knowledge was far deeper than mine.

BORN New York, USA 1940.

EDUCATION In 1960 Steinhardt graduated from the Wharton School of Finance at the University of Pennsylvania in only three years.

CAREER Steinhardt began his career on Wall Street in research and analyst positions with mutual-fund company Calvin Bullock followed by a similar position at the brokerage firm at Loeb, Rhoades & Co, before founding Steinhardt, Fine, Berkowitz & Co., a hedge fund, in 1967. He retired and closed the fund in 1995. In 2004 he made a comeback through Wisdom Tree, which is the seventh largest index fund in the US based on ETF.

INVESTMENT PHILOSOPHY Even if the fundamentals were the starting-point, he usually ended up being a short-term investor with the normal holding being no longer than a month. ‘Our investment style is four yards up the middle in a cloud of dust’ as he himself described his investment style with the help of a metaphor from American football. He invested in all forms of assets, but stocks were usually in the majority. In the final years of the fund’s existence he also invested abroad, but with dreadful results. In contrast to the other traders in this book, Steinhardt was the opposite of a trend-follower. He preferred to go against the market and short his favorite companies. Neither did he care for technical analysis and graphs. Contrarian is probably the best description of his style, but in large part he was highly individual, and hard to copy. He had no rules or valuation frameworks, but tried simply to think differently. Steinhardt was known for his ability to predict the direction of the stock market. In his time, he was said to have been the most demanding boss on Wall Street.

OTHER He was one of the first prominent hedge-fund managers. No one has been so successful (over 30 % annual gross performance in 28 years) or had that stamina using such an intense investment strategy as Michael Steinhardt. One dollar invested in 1967 in his fund would have grown to $481 in 1995, compared to $19 for S&P 500 in the same period. Having in mind that Steinhardt on average only was roughly 35% net long in his portfolio over the time tells you how good he must have been on both picking winners and losers in the stockmarket. In 2001 he published his autobiography: No bull: my life in and out of the markets. Since retirement he has managed his own money and collected art. He is also a major philanthropist, active in Jewish causes.

Sources: Michael Steinhardt, No bull: my life in and out of markets (2001); Investopedia; Wikipedia.

May 13, 2018

Marc Faber

May 13, 2018/ Magnus Angenfelt

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Be very careful of any forecast. Usually, analysts, fund managers, and strategists can foresee the future only when it coincides with their own wishes, whereas they ignore the most obvious facts when these facts are not welcome.

Watch day and night (the latter very important) with curiosity what is happening around you because the greatest investment opportunities are always hidden in the most unlikely places.

We all need to remind ourselves that we have no idea how the world will look like in five years, let alone ten. Therefore, some of our business or investment decisions will be very wrong. But, what we need to focus upon is what the consequences could be, if we are wrong.

Investors mostly fail because they find it very hard to do nothing. But by spending a day in a round of strenuous idleness without your mobile phone and Blackberry, you may see the future more clearly. Remember, patience is also a form of action.

BORN Zurich, Switzerland 1946.

EDUCATION Faber studied economics at the University of Zurich and, at the age of 24, obtained a Ph.D. in Economics.

CAREER Between 1970 and 1978, Faber worked for the investment bank White Weld & Company Ltd. in New York, Zurich, and Hong Kong. Since 1973, he has lived in Hong Kong. From 1978 to February 1990, he was the managing director of Drexel Burnham Lambert (HK) Ltd. In June 1990, he set up his own business, Marc Faber Ltd., which acts as an investment advisor and fund manager. In addition, he publishes a widely read monthly investment newsletter The Gloom Boom & Doom Report, writes books, and is a regular contributor to several leading financial publications around the world.

INVESTMENT PHILOSOPHY Faber invests and advises all over the world in almost all asset classes. He relies on his command of economic history as well as his time as a trader. He focuses on macro, strategy and gold. For people in the investment community, he is maybe known as the most notorious bear in the market and at the same time a contrarian investor. The first is not always true. He has made several bullish calls, of which Brazil stocks in 1990s and world stock market in spring 2009 are the most remembered. The following cornerstones advice gives a sense of his investment philosophy: (i) Everything comes to the investor who buys out-of-favour and neglected assets. (ii) The best way to make money is to buy value stocks: low price to sales, low price to book, low price to cash flow, high dividend yield. (iii) Never forget to diversify properly. (iv) Never get carried away by a lucky investment with outsized gains. (v) Stay single! Even if he digs into specific stocks and sectors he spends most time on the macro level. He is keen on the Austrian School of economics.

OTHER He is well-known for being prescient about the 2008 financial crisis; the Asian crisis months before it happened; warning his clients to cash out before Black Monday in 1987; forecasting the burst in the Japanese bubble in 1990; correctly predicting the collapse in US gaming stocks in 1993; foreseeing the Asia-Pacific financial crisis of 1997/98; and so on. His mantra is ‘Follow the course opposite to custom and you will almost always be right’. His book Tomorrow’s Gold was for several weeks on Amazon’s best-seller list. The Gloom Boom & Doom Report uses economic, social, and historical trends to warn investors when investment themes have become widely accepted and are, therefore, highly priced and risky, while it continuously searches for opportunities in unloved and depressed markets. Gold is the asset where he has been most successful. His web site is illustrated with 17th century paintings of “The Dance of Death” and he is nicknamed Dr Doom. He has a collection of a quarter of a million Mao badges and has a ponytail.

Sources: Marc Faber; gloomboomdoom.com; Wikipedia.

April 15, 2018

Jean-Marie Eveillard

April 15, 2018/ Magnus Angenfelt

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Value investing makes sense and it works – over time. Benjamin Graham’s book The Intelligent Investor and Warren Buffett’s letters to shareholders in Berkshire Hathaway’s annual report are not about complex mathematical models; they’re about common sense.

In 1984, Buffett showed that the returns – over time – of the value investors were much above average. In a 2004 update, the late Lou Lowenstein showed again that the returns over time of ten value funds (including our own First Eagle Global) were much above average. So why so few value investors? They’re patient, long-term investors who therefore every now and then lag behind their peers and the benchmark. And to lag is to suffer. Value investors understand that the rewards come over time. No immediate gratification.

In the recent (and continuing) financial crisis, many value investors learned a lesson: it’s no longer enough to be entirely bottom-up investors. A key question today is whether we are still in the economic and financial landscape of the post-Second World War period or are we in a new, so far undefined landscape?

BORN Poitiers, France, 1940.

EDUCATION Eveillard is a graduate of Écoles des Hautes Études Commerciales, an esteemed French graduate school for business studies.

CAREER He started his career in 1962 with the French bank Société Générale until relocating to the US in 1968. Two years later, Eveillard began as an analyst with the SoGen International Fund. In 1979, he was appointed as the portfolio manager of the fund, later renamed the First Eagle Global Fund. After managing it for over thirty years, he now serves as senior adviser.

INVESTMENT PHILOSOPHY Eveillard is a long-term international stock market value investor, with a history of investing against the herd. In contrast to most value investors, he also has a top-down scenario. Another difference is in valuations, where he focuses on the enterprise value to EBIT. Preservation of capital is of highest priority. In general he buys stocks of companies that are financially safe, where there is very little or no debt, and whose intrinsic value is seen as being well above the current stock price. He is suspicious of low tax, which he thinks is usually a sign that profits are overstated. His remark ‘I know the argument that you should only own your best 30 or 40 ideas, but I’ve never proven over time that I actually know in advance what those are’ explains why he usually has more than 100 positions in his portfolios. He has kept a gold position in his funds as ‘calamity insurance’ for several years. He regards his investment style to be sometimes in the Benjamin Graham (deep-value) mode, but more often in the Warren Buffett mode.

OTHER Eveillard took the First Eagle Global Fund from $15 million to its current $20 billion in assets. He managed the fund alone for the first seven years. When Eveillard’s successor abruptly resigned, he made a comeback aged 67. He is fond of the Austrian School of economics. In 2003, together with Ralph Wanger, he was the first to receive the Lifetime Achievement Award from Morningstar for building one of the most successful long-term records in the investment business. Through the Eveillard Family Charitable Trust he has provided support to a wide range of institutions in the arts, education, and social services. He enjoys going to the opera, and collects drawings in the same contrarian manner as he acquires securities.

Sources: Jean-Marie Eveillard; First Eagle Global Fund 1979–2011; Forbes, September 2009; Wikipedia.

February 11, 2018

Shelby C. Davis

February 11, 2018/ Magnus Angenfelt

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· You make most of your money in a bear market. You just don’t realize it at the time.

· Great companies bought at great prices should be like great friends—you do not want to drop them precipitously.

· History provides a crucial insight regarding market crises: they are inevitable, painful, and ultimately surmountable.

BORN Peoria, Illinois, USA 1909. Died 1994.

EDUCATION Davis graduated from Princeton University and took a Master’s at Columbia University in 1931. He earned a Ph.D. in political science at the Graduate Institute of International Studies, Geneva, in 1934.

CAREER His studies complete, he first worked at his brother-in-law’s investment firm for five years before becoming a freelance writer. Aged 38 he got $50,000 in seed capital from his wife and founded Shelby Cullom Davis & Company, mainly to manage insurance stocks. Between 1969 and 1975 he was also US Ambassador to Switzerland.

INVESTMENT PHILOSOPHY Davis was a specialized stock market value investor. He only invested in companies he knew well and where he had an edge (insurance companies in most cases). He focused on fundamentals, and especially looked for a solid balance sheet making sure the insurer did not hold risky assets such as junk bonds. He then measured the management quality and made trips to meet with management and drill them. He searched for what he called ‘compounding machines’, but equally he liked a boost from earnings and from investors bidding up the multiple. The strategy was known as the ‘Davis Double Play’. It was a buy-and-hold strategy, and he kept a long-term perspective through bull and bear markets. He was probably one of the first US investors abroad when he invested in Japanese insurance companies in the early 1960s. He recommended diversification, so that the ones you were wrong about were balanced by the ones you were right about.

OTHER By the time of his death in 1994, he had turned the original $50,000 stake into $900 million. In 47 years he had increased his stake 18.000 fold! The strategy of focusing on the insurance industry came to him after he had studied Benjamin Graham’s writings. Davis made the Forbes 400 list in 1988, and other than Warren Buffett he was the only one to make the list by picking stocks for a living. He gave all his wealth to a charitable trust and was known for extreme frugality – instead of playing tennis with new balls he used old, ratty ones.

Sources: John Rothschild, The Davis Dynasty (2001); Investopedia; Wikipedia.

January 19, 2018

Michael Farmer

January 19, 2018/ Magnus Angenfelt

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· Go where there is little risk, but where there is potential for great reward—Opportunity.

· Don’t get euphoric!—Wife’s wisdom.

· Sell what you haven’t got and buy what you don’t want—Contrarian.

· Fear God, not man—We’re not here forever.

BORN Kent, UK 1944.

EDUCATION Secondary school.

CAREER Farmer left school at 18 and went to work at A. J. Strauss, a metals trading firm in the City. He started as a ‘difference account clerk’. Between 1984 and 1989, he managed the non-ferrous metals positions at Philipp Brothers, the biggest global metal trader of that period. He left in 1989 to form the Metal & Commodity Company, a subsidiary of Metallgesellschaft AG, which became the world’s largest trader in physical copper and nickel and was floated on the London stock market in 1999. One year later it was sold to Enron. After taking two years off to study the Bible he founded RK Capital Management with two partners in 2004.

INVESTMENT PHILOSOPHY Farmer is a commodity investor specializing in copper. His road to success is concentration, experience, and profound knowledge. He and his team try to be more up-to-date about the copper market – both suppliers and customers – than anyone else. Often being contrarian in this highly volatile market also requires a big portion of guts and stamina. In 2006 the fund was up by 188% followed by 50% decline the year after. Farmer probably stands for one of the most volatile investments in this book. This, despite the fact that he does not deal much in options and futures, but instead trades physical base metals between producers and consumers. Farmer says his faith makes him a better money manager by keeping him humble.

OTHER He is nicknamed Mr. Copper and he is regarded as one of the most successful commodity traders in the world. He and his team manage at present £2.3 billion. In 2011 he topped Bloomberg’s league of global mid-cap hedge-fund returns, and was named the most successful small hedge-fund manager in the world. Despite the resent tough and volatile environment in the metal market - when peers has struggle and several closed down the operation – Farmer has the last three years delivered double digits yearly return. Farmer is often responsible for shipping around 15–20% of China’s copper supplies. He has donated £2.3 million to the British Tories and in 2012 was appointed co-treasurer of the Conservative Party. He is an active Christian.

Sources: Michael Farmer; RK Capital Management; Bloomberg; Wikipedia.

December 16, 2017

Philip Carret

December 16, 2017/ Magnus Angenfelt

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Philip Carret’s twelve commandments for speculators:

1. Never hold fewer than ten different securities covering five different fields of business.

2. At least once every six months reappraise every security held.

3. Keep at least half the total fund in income-producing securities.

4. Consider yield the least important factor in analysing any stock.

5. Be quick to take losses, reluctant to take profits.

6. Never put more than 25 % of a given fund into securities about which detailed information is not readily and regularly available.

7. Avoid ‘inside information’ like the plague.

8. Seek facts diligently; advice never.

9. Ignore mechanical formulas [such as price–earnings ratios] for valuing securities.

10. When stocks are high, money rates rising, and business prosperous, at least half a given fund should be placed in short-term bonds.

11. Borrow money sparingly and only when stocks are low, money rates low or falling, and business depressed.

12. Set aside a moderate proportion of available funds for the purchase of long-term options on stocks of promising companies whenever available.

BORN Lynn, Massachusetts, USA 1896. Died 1998.

EDUCATION He graduated from Harvard College and spent one year at business school.

CAREER Carret first spent a couple of years working in the financial industry. Then, while a reporter and feature writer for the financial magazine Barron’s he began managing money for family and friends in 1924. He went on to establish what evolved into the Pioneer Fund in 1928. Later he founded Carret Zane Capital in 1962. He kept managing the fund until 1983, aged 87.

INVESTMENT PHILOSOPHY The title of one of his books, The Art of Speculation, gives the false image of a short-term trader. Carret was the opposite, being the first famous value investor. He did his own research, analysed data, and only invested in a company if its stock price did not reflect the company’s real value, and if he saw potential for growth. His remark ‘There is no substitute for buying quality assets and allowing them to compound over the long term. Patience can produce uncommon profits’ described his main objective. Small over-the-counter stocks represented a substantial part of his portfolio and he preferred to buy semi-listed stocks, which were not so often subject to course manipulation. A strong balance sheet was a crucial prerequisite for investment. He believed that options were useful when the market was bad, and as a rule he even kept cash available just for that. Leverage was used only when the market was low and there was extreme fear. He was mainly a stock market investor, but also used the bond market from time to time. He regarded the footnotes appended to annual reports as the most useful source of information.

OTHER Carret is famous for having the longest history of investing. His had 55 excellent compounded gain years as a fund manager despite major depressions, recessions, and world war. He founded the Pioneer Fund six years before Benjamin Graham first published Security Analysis. He was said to be a voracious reader. Warren Buffett and Carret exchanged ideas on a regular base for several years. At the 1996 Berkshire Hathaway Annual Meeting, Warren Buffett said: ‘The main thing is to find wonderful businesses, like Phil Carret, who’s here today, always did. He’s one of my heroes, and that’s an approach he’s used. If you’ve never met Phil, don’t miss the opportunity. You’ll learn more talking with him for fifteen minutes than by listening to me here all day.’ Carret wrote two books and continued to work on Wall Street even after he had turned a hundred. He was an avid chaser of eclipses and travelled the world to view them. His grandfather had been Napoleon’s paymaster general.

Sources: Philip Carret’s twelve commandments for speculators; Pioneer Fund; Pioneer Investment; Wikipedia.

November 20, 2017

William J. Ruane

November 20, 2017/ Magnus Angenfelt

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Buy good businesses. The single most important indicator of a good business is its return on capital. In almost every case in which a company earns a superior return on capital over a long period of time it is because it enjoys a unique proprietary position in its industry and/or has outstanding management. The ability to earn a high return on capital means that the earnings which are not paid out as dividends, but rather retained in the business, are likely to be reinvested at a high rate of return to provide for good future earnings and equity growth with low capital requirement.

Buy businesses with pricing flexibility. Another indication of a proprietary business position is pricing flexibility with little competition. In addition, pricing flexibility can provide an important hedge against capital erosion during inflationary periods.

Buy net cash generators. It is important to distinguish between reported earnings and cash earnings. Many companies must use a substantial portion of earnings for forced reinvestment in the business merely to maintain plant and equipment and present earning power. Because of such economic under-depreciation, the reported earnings of many companies may vastly overstate their true cash earnings. This is particularly true during inflationary periods. Cash earnings are those earnings which are truly available for investment in additional earning assets, or for payment to stockholders. It pays to emphasize companies which have the ability to generate a large portion of their earnings in cash.

Buy stock at modest prices. While price risk cannot be eliminated altogether, it can be lessened materially by avoiding high-multiple stocks whose price–earnings ratios are subject to enormous pressure if anticipated earnings growth does not materialize. While it is easy to identify outstanding businesses, it is more difficult to select those which can be bought at significant discounts from their true underlying value. Price is the key. Value and growth are joined at the hip. Companies that could reinvest at 12 per cent consistently with interest rate at 6 per cent deserve a premium.

BORN Chicago, USA 1925. Died 2005.

EDUCATION Ruane graduated from the University of Minnesota in 1945 with a degree in electrical engineering and a Master’s from Harvard Business School in 1949.

CAREER After one year at General Electric he went to work for Kidder Peabody, where he stayed for 20 years. Aged 45, Ruane founded his own investment firm, Ruane Cunniff, with partner Rick Cunniff, and the same year they launched their flagship Sequoia Fund.

INVESTMENT PHILOSOPHY As a student and disciple of value investment guru Benjamin Graham, his profile as a stock market investor is obvious. In addition to the above ‘insights’ it is worth mentioning his meticulous attention to detail. He needed to understand a company and therefore had no taste for tech stocks. The Sequoia Fund today holds a moderately diversified portfolio of 75 positions, both large and small caps. Average holdings are around three years.

OTHER He met Warren Buffett at an investment seminar with Benjamin Graham and he and Buffett became lifelong friends. Most of their customers came to Ruane Cunniff on Buffett’s recommendation. Ruane also served on numerous boards, including those of Geico, Data Documents Inc. and the Washington Post. He was a great philanthropist and adopted a block in Harlem, renovating buildings and establishing clinics and community service programs. He also funded educational programs on Indian reservations, and supported mental health charities. In addition, he set up TeenScreen, a nationwide organization that tests teenagers for symptoms of depression and other suicide risk factors. Humor and concern for others was his mantra.

Sources: Ruane’s ‘Four rules of smart investing’ from his lecture at Columbia University, compiled by Brian Zen; Life in legacy; Wikipedia.

October 28, 2017

James H. Simons

October 28, 2017/ Magnus Angenfelt

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· There is no real substitute for common sense except for good luck, which is a perfect substitute for everything.

· Statistic predictor signals erode over subsequent years; it can be five years or ten years. You have to keep coming up with new things because the market is against us. If you don’t keep getting better, you’re going to do worse.

· The most important issue is to hire great people because they do a first-class job, offer people great infrastructure, have an open atmosphere and get people compensated on the overall performance.

BORN Newton, Massachusetts, USA 1938.

EDUCATION Simons received a B.Sc. in Mathematics from MIT in 1958 and, aged 23, a Ph.D. in Mathematics from the University of California, Berkeley.

CAREER After four years as a member of the research staff at the Communications Research Division of the Institute for Defense Analyses he was appointed chairman of the math’s department at Stony Brook University. Aged 40 he left academia to run an investment fund that traded in commodities and financial instruments on a discretionary basis. In 1982 he launched the hedge fund Renaissance Technologies. He retired on 1 January 2010, but remains at Renaissance as non-executive chairman.

INVESTMENT PHILOSOPHY Simons is the most successful now living quantitative money manager. Renaissance’s models are based on analyzing as much data as can be gathered, then looking for non-random movements to make predictions–a strategy that is not easy to copy. The Renaissance approach requires that trades pay off in a limited, specified timeframe. If a big transaction is about to take place on the market Renaissance pushes to the front of the queue. Simons himself explained the strategy in an interview: ‘Efficient market theory is correct in that there are no gross inefficiencies but we look at anomalies that may be small in size and brief in time. We make our forecast. Then, shortly thereafter, we re-evaluate the situation and revise our forecast and our portfolio. We do this all day long. We’re always in and out and out and in. So we’re dependent on activity to make money.’ In doing this, Simons surrounds himself with like minds: mathematicians, physicists, astrophysicists, and statisticians. About a third of the 275 employees have doctorates.

OTHER Renaissance Technology manages $15 billion at present and is one of the most profitable hedge funds in the world, despite its high fees. (5 % in fixed fee plus 44 % in performance fee) Simons alone earned an estimated $2.5 billion in 2008, and with an estimated net worth of $12 billion, he is one of the richest individuals in the world. The Financial Times named him ‘the world’s smartest billionaire’ 2006. Simons’s most influential research involved the discovery and application of certain geometric measurements, and resulted in the Chern–Simons form (also known as Chern–Simons invariants or Chern–Simons theory). Simons has been known to show up at formal business meetings without socks. He is an active participant in a variety of philanthropic endeavors. Supporting autism research is one.

Sources: James A. Simons – lecture at International Association of Financial Engineers annual conference 2006; as well as at MIT, 2010; Greenwich Roundtable Medallion Fund; Wikipedia.

October 01, 2017

Francisco Garcia Paramés

October 01, 2017/ Magnus Angenfelt

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Personality vs intelligence: 90 % of investors with whom we discuss our investments agree on the attractive nature of these investments. But only a very small proportion is prepared to take the next steps: invest and then wait for as long as necessary. One must be able to ignore market movements and any institutional obligations, even emphasize one’s convictions by increasing the investment when the markets do not look favourable. In short, it is essential to know oneself, and along with a normal IQ, the determining factor will be character.

A good backup to these qualities is references. For anyone (particularly in Madrid, which is not renowned for its investing tradition), the sense of security achieved by following in the steps of an experienced investor is very important. Both in the good times (when in either absolute or relative terms, things are going well) and the bad, analysing the careers of investors who have been through similar situations allows one to act with conviction and maintain a long term view, something which can sometimes be lost.

Never stop learning: When we invest, we must have strong conviction and determination in the process. To have permanent doubts is pointless, in spite of the fact that uncertainty is a constant. But that conviction must go hand in hand with a permanent capacity to learn – not an easy thing to do. For example, a couple of years ago at Bestinver, following a good track record over the previous fifteen years, we came across a (little) book by a well-known investor which caused us to fine-tune our strategies, although without actually altering the essentials. It is not easy to conjugate ‘conviction’ and ‘open mind’ in the same sentence, but it must be done!

Economic framework: The majority of well-known investors command a relatively superficial knowledge of the so-called ‘economy’. I arrived at the Austrian School of economics after eight years as an investor, and I did so precisely because it provided a theoretical framework to what I was seeing every day in the market, namely, human action. Only here it was it explained in incentives, objectives, consequences, etc – that is, life itself. Thanks to Mises and Hayek, among others, we can navigate through an investors’ world with a compass that shows us over which waters we can sail, and which we cannot.

BORN Galicia, Spain 1963.

EDUCATION García Paramés has an Economics degree from the Complutense University of Madrid, and took an MBA at the IESE Business School (Barcelona) 1989.

CAREER García Paramés started his career at Bestinver as a stock analyst in 1989. His passion for investment led him to asset management, and he was soon named CIO of the company, where he remains to this day.

INVESTMENT PHILOSOPHY García Paramés’s management style is based on the strict application of the principles of value investment (Graham, Buffett, etc.), within a framework of a profound knowledge of the Austrian School’s theory of economic cycles. Pricing power and cash flow are important parameters in the analyses. García Paramés avoids investments where he cannot forecast the next ten years. During the last few years the portfolio has shifted to only include quality companies. He never fights the management.

OTHER Nicknamed ‘the Warren Buffett of Europe’, his more recent fund, Bestinver Internacional (Global Equity Fund), launched 1998, has an annual return of almost 11 %, beating the benchmark (2 %) by a factor of more than five. Bestinver has now more than than $12 billion in asset under management. He is a self-taught investor, similar to some of the other superstars. It is especially impressive since he is from Spain, which has no long tradition of investing. He speaks and reads five languages.

Sources: Francisco García Paramés; Bestinver; Wikipedia.

June 18, 2017

T.Boone Pickens

June 18, 2017/ Magnus Angenfelt

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Chief executives, who themselves own few shares in their companies, have no more feeling for the average stockholder than they do for baboons in Africa. Always keeping in mind that shareholders are the owners of a company, while members of the management are employees.

Far too many executives have become more concerned with the four P’s – pay, perks, power, and prestige – rather than making profits for shareholders.

Show up early, work hard, stay late. Work eight hours and sleep eight hours, and make sure they are not the same eight hours.

BORN Oklahoma, USA 1928.

EDUCATION Pickens graduated from Oklahoma A&M (now Oklahoma State University) with a degree in geology in 1951.

CAREER He started his career at Phillips Petroleum in 1951. In 1956 he founded the company that would later become Mesa Petroleum, which turned into one of the world’s largest independent oil companies. In the 1980s, Pickens became famous as a corporate raider, with several big deals of which Gulf Oil was among the largest. By the mid-1990s he gave up his raiding after a brutal and expensive fight with Unoca. In 1997 Pickens founded BP Capital Management. He holds a 46 % interest in the company, which runs two hedge funds, Capital Commodity and Capital Equity.

INVESTMENT PHILOSOPHY Pickens is an oilman and shareholder activist who in later years has become a hedge-fund manager. He is entirely concentrated on the energy sector, mostly in oil. His analysis starts at the top, with a scenario for the different forms of energy, from where he drills down to the individual company. He prefers to seek out badly run companies where he can influence their governance and management. In his role as a hedge-fund manager he has a different strategy to his earlier days, when he was an activist and would even buy whole companies (in those days there were many deals which never came to fruition, but with enough noise and fuss the stock rose nevertheless and Pickens was able to exit with excellent profits).

Pickens’s key characteristics as an investor are his knowledge of the energy sector, endurance, and courage. He is possibly one of the most risk-inclined investor in this book. One example is how through his company Mesa Petroleum he bought the thirty-times larger Hugoton Production. His hedge funds are not for the weak of heart either. One of them was founded in 1997 and lost 90 % in two years. The other hedge fund showed an annual return of 38 % for six years, before becoming one of the greatest loss-makers in the sector in 2008. Pickens’s reckless style is perhaps best described in his own words in a quotation from Katherine Burton’s book Hedge hunters: ‘Most of my ideas work, but the timing gets screwed up every once in a while.’

OTHER He was involved in the creation of the United Shareholders Association. Pickens has been (but not any more due to strides in technology have altered the energy landscape) outspoken on the issue of peak oil, and advocates alternative and renewable energy sources such as solar and wind. In 2007 Pickens earned $2.7 billion as the Capital Equity Fund increased 24 % after fees, and the $590 million Capital Commodity fund grew 40 %. Pickens has donated more than $1 billion to charity. According to Forbes he is “only” worth 1.6 billion US dollars today.

Sources: T. Boone Pickens, The First Billion is the Hardest (2008); Katherine Burton, Hedge hunters: After the Credit Crisis, How Hedge Fund Masters Survived (2007); boonepickens.com; Businessweek; Insider Monkey; CNBC

April 25, 2017

Richard Perry

April 25, 2017/ Magnus Angenfelt

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Richard Perry’s investment aphorisms:

· Every investment should be measured on an expected value basis – how much can I make, how much can I lose, and what are the probabilities associated with each outcome.

· Don’t listen to what people say or write, try to intuit what they mean.

· Good investors use a combination of brains and gut. To paraphrase Leonardo Da Vinci, one must understand the science of art and the art of science.

· By the time your analysis is perfected the investment opportunity is probably gone.

· There are many different investment strategies. Focus on the ones you do best and avoid the ones you do poorly.

· Value is buying a dollar for 50 cents and having a business plan that turns that 50 cents back into a dollar. Value traps are buying a dollar for 50 cents and a business plan that makes that dollar worth dramatically less than 50 cents.

· People will behave as they are incented to behave.

· Translate complex theories into simple statements.

· Beware of obsolescence.

· Sales and marketing are critical components of a successful business.

· Invest like a local.

BORN Los Angeles, USA 1955

EDUCATION Richard Perry has a BA from the University of Pennsylvania’s Wharton School in 1977, and an MBA from New York University’s Stern School of Business in 1980.

CAREER Perry began his career at the options trading desk at the investment bank Goldman Sachs in the mid-1970s. When he left in 1988 to start the hedge fund Perry Capital he was working in equity arbitrage, while lecturing on finance at the Stern School of Business at New York University. He has been CEO of Perry Capital from the start.

INVESTMENT PHILOSOPHY Perry could be described as an event-driven, value-oriented, multi-strategy hedge-fund manager. He controls a number of strategic positions simultaneously, and bases his business model on having several different income streams. One strategy is to seek out companies that have the potential to restructure through acquisitions or disposals, often those in reconstruction after bankruptcy. Another area is investments in distressed loans. However, he also invests in unlisted companies and property, and uses his cash supply to lend money at high returns to investors who are not able to lend from banks. He usually works with a neutral portfolio and with lending. He has called his approach ‘expected value analysis’: it is based on calculating the percentage likelihood of various outcomes and multiplying them by the current bond price, after which he compares the expected value with the current market price to determine whether he should buy or sell. Every now and again he becomes deeply engaged with a particular investment. Recently, he became the principal owner of Barneys New York, a luxury American chain store.

OTHER At present Perry manages $10 billion in assets. For the first 19 years, his hedge fund did not have a single deficit year. Perry was also one of a few on Wall Street to start betting against subprime mortgages as early as 2006. He is the chairman of the board of Barneys New York Inc. and a member of the boards of trustees of Facing History and Ourselves. His mentor at Goldman Sachs was Robert Rubin, US Secretary of the Treasury during the Clinton administration. Perry is an avid collector of pop art and a triathlon runner.

Sources: Richard Perry; Perry Capital.

March 26, 2017

Ray Dalio

March 26, 2017/ Magnus Angenfelt

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While most others seem to believe that mistakes are bad things, I believe mistakes are good things, because I believe that most learning comes via making mistakes and reflecting on them. Blaming bad outcomes on anyone or anything other than oneself is both incorrect and subversive to one’s progress. It is incorrect because bad things come at everyone, and it is your challenge and test to successfully deal with whatever comes at you. Blaming bad outcomes on anyone or anything other than oneself is essentially wishing that reality were different than it is, which is silly. It is also subversive because it diverts one’s attention away from mustering the personal strength and other qualities that are required if one is to produce the best possible outcomes. Remember, Nature is testing you, and it is not sympathetic.

Everyone has weaknesses. The main difference between unsuccessful and successful people is that unsuccessful people don’t find and address them, and successful people do. That is why, as one of our managers has observed, reflective people are much more successful than deflective people.

In order to make money in the market you have to be an independent thinker. And, I think, creative too.

BORN Queens, New York USA 1949.

EDUCATION Dalio received a BA from Long Island University and an MBA from Harvard Business School in 1973.

CAREER Dalio worked on the floor of the New York Stock Exchange and invested in commodity futures. After his MBA, he started work as director of commodities at Dominick & Dominick LLC. In 1974, he became a futures trader and broker at Shearson Hayden Stone. In 1975, aged 26, he founded the investment management firm, Bridgewater Associates where he is president, co-CIO and mentor.

INVESTMENT PHILOSOPHY Dalio is a hedge fund investor with macro investments as his specialty. He is a master of the diversification needed to enable him to steer his giant funds. He bets mainly on economic trends, such as changes in exchange rates, inflation, and GDP growth round the globe. He spends most of his time trying to figure out how economic and financial events fit together in a coherent framework. Bond and currency markets, in which Dalio is an expert, are widely believed to represent the greatest bulk of profits historically. But he is also active in other asset classes. Gold was one of the company’s largest contributors in 2010. In stocks Bridgewater tends to make relatively small, but numerous equities investments, sometimes having several hundred equity positions. He regards the consensus as ‘often wrong’, which is why he judges independent thinking to be the main criteria in managing money.

OTHER He is said to be intelligent and idiosyncratic, and manages the world’s largest hedge fund with $140 billion in assets and 1,200 employees. In 2011, Bridgewater was ranked both the largest and the best-performing hedge-fund manager in the world, which is a unique combination. With its 39 billion profit in US dollars for clients Bridgewater has furthermore become the hedge fund with the second highest yield ever in absolute figures. The last 18 years’ performance is estimated to have been 15 % annually before fees. One of the more striking features of Bridgewater Associates is the corporate culture that Dalio has created. Dalio has presented the concept in a 123-page online book, Principles. He bought his first shares at the age of 12, and according to the Forbes he had a net worth of US$12.9 billion as of 2013. Dalio is a practitioner of transcendental meditation; his main hobby is music – jazz, blues, and rock ‘n’ roll (his father was a jazz musician). Recently, he joined a philanthropic campaign, pledging to give away at least half of his money.

Sources: Ray Dalio, Principles; CNBC; Bridgewater Associates; gurufocus.com; The New Yorker, 2011; Wikipedia.

February 26, 2017

John Neff

February 26, 2017/ Magnus Angenfelt

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Conventional wisdom suggests that, for investors, more information these days is blessing and more competition is a curse. I’d say the opposite is true. Copying with so much information runs the risk of distracting attention from the few variables that really matter. Because sound evaluations call for assembling information in a logical and careful manner, my odds improve, thanks to proliferating numbers of traders motivated by tips and superficial knowledge. By failing to perform rigorous, fundamental analyses of companies, industries, or economic trends, these investors become prospectors who only chase gold where everyone else is already looking. Mutual fund investors who think they can make money by chasing the hottest fund are panning the same overworked streams.

Many circumstances and yardsticks have changed. Companies cited have grown, merged, or, in some cases, closed their doors. Dividend yields are not so lavish nowadays, and erstwhile P/E ratios seem almost quaint. Brief security analyses are not intended as current recommendations, but as testimony to the thought processes that shaped Windsor’s fortunes. Are they still valid? I think so. The relationship of total return to the P/E ratio still governs my investment decisions, and the returns meet my high standards.

If a lesson emerges besides the merits of low P/E ratios, it should be that successful, long-term investment strategies need not rest on a few very risky glamour stocks. The record will show that we painted our canvas using a broad palette. At various times, Windsor owned representatives of all but two industries, and many were revisited more than once. Some payoffs were of the championship variety; others were nothing to be proud of. Now and then, we hit home runs, but our scoring relied chiefly on base hits. To go home winners, that’s all investors need.

BORN Wauseon, Ohio, USA 1931.

EDUCATION Neff graduated summa cum laude with a BA from the University of Toledo in 1955. He obtained his MBA from Case Western Reserve University in 1958.

CAREER Neff started as a securities analyst with the National City Bank of Cleveland 1955. He joined the Wellington Management Co. in 1964, becoming the portfolio manager of the Windsor, Gemini and Qualified Dividend Funds. He retired in 1995 after more than three decades.

INVESTMENT PHILOSOPHY Neff’s investment strategy was in reality a blend of contrarian, growth and value investing. He calls himself a low price–earnings investor. He focused on the least popular stocks, but they needed to have an organic growth in excess of 7 %, yield protection, and be a solid company. Investments were always based on rigorous fundamental analysis, examining both management and the books in detail. Future earnings were everything and he regards ROE (return on equity) as the most important single yardstick of what management has accomplished for shareholders. On average, Neff’s stocks had a P/E ratio that was half that of the rest of the market. The number of holdings was rarely under 100. He was known for his discipline and his long working days, and for being highly knowledgeable about the companies he invested in.

OTHER The Windsor Fund was the best performing mutual fund during his tenure and became the largest fund, closing to new investors in the 1980s. Of the 31 years he managed the fund, he beat the market in 22 years. He was said to take the week’s entire Wall Street Journal copies home for a second read over the weekend.

Sources: John Neff, John Neff on Investing (2001); CFA Institute; Wikipedia.

January 26, 2017

Robert Maple-Brown

January 26, 2017/ Magnus Angenfelt

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§ Firstly, I am a ‘value’ investor and I believe that extensive fundamental analysis of each investment is very important.

§ Secondly, although I believe that diversification is important, I believe Australian equity portfolios should only have about thirty individual investments.

§ Thirdly, ‘value’ is not the same as ‘cheap’, and so the industry in which the company operates and the quality of its management are all-important in determining ‘value’.

BORN New South Wales, Australia 1940. Died 2012.

EDUCATION Maple-Brown graduated from the University of New South Wales in 1965 with a degree in Commerce, and become a Chartered Accountant five years later.

CAREER Maple-Brown joined the merchant bank International Pacific Corporation, which later became Rothschild Australia. After being responsible for the investment management division, he left in 1984 to form Maple-Brown Abbott Ltd. aged 44. He was CEO until 2000 and was non-executive chairman until his death.

INVESTMENT PHILOSOPHY Long-term bottom-up value stock picking is probably the best description of Maple-Brown’s investment style. Confident that markets are inherently inefficient, he took advantage of inevitable periods of excess pessimism by buying when valuations were depressed and selling when valuations became extended during periods of excess optimism – a contrarian approach. Maple-Brown’s investments in general had lower price–earnings ratios, lower valuations of book value, stronger balance sheets, and a higher dividend yield than the market.

The focus was on balance sheet strength and by reconciling reported profits with underlying cash flow. He invested in all asset classes, but was famous for his stock market investments and did not back off in case of pushing for changes in management when necessary.

OTHER Maple-Brown’s value-based investment philosophy started the tradition of value investing in the Australian market. Adjusted for having around 20 % in cash on average, the fund has beaten the benchmark substantially since its inception, and currently manages in excess of $9 billion. He had the long-term performance record in managing Australian equity portfolios and balanced funds. Maple-Brown was inspired by Benjamin Graham in the 1960s.

Sources: Robert Maple-Brown; Maple-Brown Abbott Pooled Superannuation Trust; Wikipedia.

December 18, 2016

Neil Woodford

December 18, 2016/ Magnus Angenfelt

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Investor profile at InvestingByTheBooks: The book The World’s 99 Greatest Investors: The Secret of Success provides a unique opportunity to learn form the most prominent investors globally. In the book they generously share their experiences, advice and insights and we are proud to present these excerpts. Magnus Angenfelt, previously a top ranked sell side analyst and hedge fund manager, will be presenting one investor per month. For those who cannot wait for the monthly columns, we strongly recommend you to buy the book. The investor himself writes the first section below and then Angenfelt describes the background of the investor and comments on his investment philosophy. Enjoy.

Long term. Taking a long-term view is an increasingly unfashionable approach in today’s environment. In recent years, average holding periods for equities have shortened dramatically, reflecting a trading rather than an investing mentality. For me, investing in a company is an ongoing process: it starts with meeting the management team and undertaking in depth research of the business and typically I will build a holding over a period of time. While clearly things can change, my intention is to be a long-term owner of that company; I am not simply seeking a quick return. Many of the companies that are in my portfolios have been there for more than ten years and they continue to deliver the earnings and dividend growth that attracted me to them at the outset. As I alluded to above, markets can be driven by a number of things, and during those periods stocks can be mispriced for a considerable length of time. We saw this in the late 1990s with the TMT bubble and we have also seen it more recently in the postfinancial crisis period. However, sooner or later, markets return to valuing companies according to their fundamental characteristics, and so maintaining conviction during these times and focusing on the long-term is essential to fully participate in the returns that selected companies can provide.

Valuation. My second key element is fundamentals. Simply put, earnings and dividend growth drive share prices in the long term, and so these are the key metrics on which to focus. Dividends are one of the best ways to gauge the health of a business, as well as providing a good insight into the management’s capital discipline and recognition of shareholder returns. Research also indicates that those companies with the strongest dividend growth provide the best capital returns in the long term. Therefore, a company’s ability to consistently grow its earnings and dividends is a prime consideration in my investment approach. At the same time, a company fulfilling these requirements is not necessarily a good investment. Valuation is critical, and it is where I believe a company’s growth potential is not reflected in its valuation that will I consider investing.

Risk. This brings us to the final core element of my investment approach, which is the management of risk. I have an unconstrained approach within the portfolios that I manage and so I do not view risk as being relative to a benchmark index. To me, risk is the permanent loss of capital, and in that sense I have an absolute return mentality. Risk can never be completely eliminated from equity market investment, but there are steps that can help to reduce it. Understanding risk means understanding the underlying business: what it does, how it earns its profits, and how sustainable are those returns. Gaining this level of insight and knowledge of a company enables me to form an opinion on how that company should be valued. If the conclusion is that the company is undervalued then it represents a lower-risk investment—in other words, valuation is, in itself, an effective risk management tool.

BORN Berkshire, UK 1960.
EDUCATION Woodford holds a BA in Economics and Agricultural Economics from the University of Exeter; he later studied Finance at the London Business School.
CAREER He commenced his investment career in 1981 with the Dominion Insurance Company, and subsequently joined Eagle Star as a fund manager in 1987. One year later he joined Invesco Perpetual as a fund manager in the UK equities team, and is currently the company’s head of investments. He recently announced his departure from Invesco Perpetual to take place in 2014.
INVESTMENT PHILOSOPHY Woodford is a fundamental long-term bottom-up stock market value investor. He invests mainly in the UK. As follows of his extensive description above, his preference is for resilient companies whose growth and earnings he sees as stable, yet are underappreciated by the market. Not surprisingly he shows the best relative performance in turbulent market conditions. Woodford is something of an activist, pressing managers at companies to pursue share buybacks when the intrinsic value of a company well exceeds its share price.
OTHER As head of investments at Invesco Perpetual, Woodford controls over £30 billion of assets. He has been awarded several prizes. His hobbies include wildlife and horses.

Sources: Neil Woodford; Invesco Perpetual High Income Fund; Wikipedia.

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