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17 Investors in One Word Each

  
  Education
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#1 Warren Buffett: Focus

This is the word Warren Buffett uses to describe himself when asked about the key to his success. He focused moe on making money than most people. A lot more than Ben Graham or Charlie Munger. Focus is also a good word to describe Buffett’s investment style. He only makes big investments on big ideas. And at some times he concentrated his investment on an industry like media & advertising in the 70s or consumer products in the 80s.

 #2 Charlie Munger: Smart

I thought he’s the smartest person I knew after reading Poor Charlie’s Almanack. I like his ideas about a multi-disciplinary approach. And I like the way he waits and bets big when opportunities appear. I agree with him that diversification is to protect against ignorance. People may think he’s arrogant. I think he has earned the right to be arrogant.

 #3 Ben Graham: Lazy

Actually Ben Graham did a lot of things. He wrote a Broadway play. He read French novels. He recited Spanish poets. Investing was just one of his interests. By lazy, I mean he didn’t focus on investing as much as Warren Buffett. He wanted to find a safe system for investing. But that doesn’t mean he’s not good. He’s great. He knows where to apply his system.

 #4 Phil Fisher: Conviction

For all his life, Phil Fisher followed what he believed. He wanted to find companies with the capabilities to constantly find new products/services for growth. And when he believed he found the right company, he never sold.

 #5 Tom Russo: Long-Term

I like his investment style. He learned to buy and hold the stocks that he understood best after listening to Warren Buffett’s talk to his Stanford business school class in 1980. He mainly focuses on food and beverage companies. And he holds for very long time. He bought one of his favorites, Nestle, in 1987. And he still owns it today. (more…)

The Tortoise and the Hare

  
  Education
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Once upon a time, there was a young hare, a hotshot rabbit investor who would always brag to anyone that would listen and that he was the smartest, fastest, best performing investor in the world. He would constantly tease the old tortoise about his slow, solid investment style.

Then, one day, the annoyed tortoise answered back: “There is no denying that you are very aggressive in your investment strategy. You take very high risks and get high returns. But even you can be beaten.”

The young hare squealed with laughter. “Beaten? By whom? Surely not by you. I bet there’s nobody in the world that can win against me, because I’m so good. If you think that you can beat me, why don’t you try?”

Provoked by such bragging, the tortoise accepted the challenge. Each of them put an equal amount of money into a new account and the race was on. The hare yawned sleepily as the meek tortoise trudged slowly off.

As might be expected, the tortoise invested in high quality blue chips, companies with household names.

The hare, as anticipated, invested his money in dotcom stocks and options.

You know the story. The aggressive hare jumped out to a big early lead. In a rising market, the highest risk stocks perform the best. This is called momentum investing. Money flows into the investments that are performing the best.

The hare, having jumped out to such a large early lead, stopped paying attention to the market environment. Basically, he fell asleep. He thought to himself, “I’ll have 40 winks and still remain way ahead of that stupid old turtle.” (more…)

The Strategy Of John Neff

  
  Education
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MUST READTaken from the April 26, 2013 issue of The Validea Hot List

Guru Spotlight: John Neff

Most investors wouldn’t give a fund described as “relatively prosaic, dull, conservative” a second glance. That, however, is exactly how John Neff described the Windsor Fund that he headed for more than three decades. And, while his style may not have been flashy or eye-catching, the returns he generated for clients were dazzling — so dazzling that Neff’s track record may be the greatest ever for a mutual fund manager.

By focusing on beaten down, unloved stocks, Neff was able to find value in places that most investors overlooked. And when the rest of the market caught on to his finds, he and his clients reaped the rewards. Over his 31-year tenure (1964-1995), Windsor averaged a 13.7 percent annual return, beating the market by an average of 3.1 percent per year. Looked at another way, a $10,000 investment in the fund the year Neff took the reins would have been worth more than $564,000 by the time he retired (with dividends reinvested); that same $10,000 invested in the S&P 500 (again with dividends reinvested) would have been worth less than half that after 31 years, about $233,000. That type of track record made the understated, low-key Neff a favorite manager of many other professional fund managers — an “investor’s investor”, if you will. (more…)

Jim Chanos on Investment Sytle ,Short Selling ,Contrarian Trading & China

  
Analysis, Education
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Graham & Doddsville, a Columbia Business School investment newsletter, has recently scored an interview with Jim Chanos, the founder and Managing Partner of Kynikos Associates and one of the world’s most successful short-sellers. His most celebrated short-sale of Enron shares was dubbed by Barron’s as “the market call of the decade, if not the past fifty years. Obviously, he’s still bearish on China’s property market and banking sector and his positions are starting to move his way. In this long (though very insightful) interview with G&D, Chanos talks about his background, investment style, short-selling, contrarian trading and, of course, China.

Here is an excerpt of the original interview (full interview below that… it’s long but it’s worth the read).

On Wall Street ethics:

“… I handed out a two page memo to the senior banker discussing the impact of buying back stock. The senior banker looked at me with an icy stare and stated that we were not in the business of recommending share buybacks to our clients; we were in the business of selling debt. This was my first douse of cold water regarding Wall Street and I became pretty disillusioned after that episode. I had learned that Wall Street wasn’t necessarily doing things in their clients’ best interest…” 

On timing a short-sale:

“I recommended a short position in Baldwin- United at $24 based on language in the 10-K and 10-Qs, uneconomic annuities, leverage issues and a host of other concerns. The stock promptly doubled on me. This was a good introduction to the fact that in investing, you can be really right but temporarily quite wrong… I went home to visit my parents for Christmas and received a phone call from Bob Holmes telling me that I was getting a great Christmas present – the state insurance regulator had seized Baldwin-United’s insurance subsidiaries.” 

On being a contrarian:

“… numerous studies have shown that most rational people’s decision-making breaks down in an environment of negative reinforcement… You’re basically told that you’re wrong in every way imaginable every day. It takes a certain type of individual to drown that noise and negative reinforcement out and to remind oneself that their work is accurate and what they’re hearing is not.” 

On shorting:

“We try not to short on valuation, though at some price even reasonably good businesses will be good shorts due to limitations of growth. We try to focus on businesses where something is going wrong. Better yet, we look for companies that are trying — often legally but aggressively — to hide the fact that things are going wrong through their accounting, acquisition policy or other means. Those are our bread-and-butter ideas…. Valuation itself is probably the last thing we factor into our decision. Some of our very best shorts have been cheap or value stocks. We look more at the business to see if there is something structurally wrong or about to go wrong, and enter the valuation last.

…You need to be able to weather being told you’re wrong all the time. Short sellers are constantly being told they’re wrong. A lot of people don’t function well in an environment of negative reinforcement and short selling is the ultimate negative reinforcement profession, as you are going against the grain of a lot of well-financed people who want to prove you wrong. It takes a certain temperament to disregard this.” 

On China:

“This is a bubble that has a long way to go on the downside. Residential real estate prices, in aggregate in China, at construction cost, are equal to 350% of GDP. The only two economies that ever saw higher numbers at roughly 375% were Japan in 1989 and Ireland in 2007, and both had epic property collapses. So the data does not look good for China.”

…In China, everyone is incented by GDP. They are fixated on growth. In the West, we go about our economic lives, and at the end of the year the statisticians say, this year your growth was 3%. But in China, it’s still centrally planned. All state policy goes through the banking system. They decide what they want growth to be and then they try and figure out how to get there.” 

Full interview below. (more…)

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