Investment Style
John Neff did not describe himself as either a value or contrarian investor, preferring instead to characterize his investing approach to one of buying “good companies, in good industries, at low price-to-earnings prices.” Despite his value-contrarian investor disclaimer, Neff’s investment management career shows a considerable amount of this type of investing strategy.
Neff practiced portfolio concentration over diversification. He pursued stocks of all sizes – large, small, and medium – as long as they evidenced low P/E ratios, which he described as “low P/E investing.” Two of Neff’s favorite investing tactics were to buy on bad news after a stock had taken a substantial plunge and to take “indirect paths” to buying in to popular industries. This involved, for example, buying manufacturers of drilling pipe that sold to the “hot stock” (too pricey for Neff) oil service companies.
He preached against participating in “adrenaline markets” (momentum driven) and preferred face-to-face meetings with a company’s management to assess its integrity and effectiveness. For most individual investors, this type of contact is not a realistic possibility; however, using Neff’s rigorous fundamental analysis techniques as applied to a company’s financials will turn up enough management performance indicators to compensate for the inability to directly interact with a company’s managers. (For more insight, see Evaluating A Company’s Management and Putting Management Under The Microscope.)
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.