John Neff's Approach to Contrarian Investing

    by Wayne A. Thorp

    As the technology bubble of the late 1990s showed, the ride up can be dizzying, but the aftermath can be a flameout. While technology issues are certainly sexier, numerous studies have shown that seemingly dowdy value approaches can generate very attractive returns.

    One long-time advocate of value investing—and a famed contrarian—is John Neff, manager of the Vanguard Windsor Fund from 1964 until his retirement in 1995. Mr. Neff followed a methodology that looked for stocks with low price-earnings ratios, solid forecasted earnings growth and historical sales growth, and an increasing dividend yield. This approach allowed Mr. Neff to guide the Windsor Fund over his 31-year tenure to an annual average return that exceeded the rate of return of the S&P 500 by more than 3%.

    Mr. Neff outlined his strategy in his book “John Neff on Investing,” in which he discussed his value investing principles.

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