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