"Best Books on Investing"
John Neff on Investing

Like most books on investing, John Neff on Investing includes the personal story of John Neff - the investing legend who led the Windsor Fund from obscurity to being the largest fund in the US. His personal story is great on its own, as is his narrative history of the market (with examples of Windsor stock picking) covering 1970 through 1993. 

But we have included it in the best books on investing because he clearly describes his approach to stock picking. The performance of the Windsor Fund over time illustrates the merits of his value investing approach.

The book is divided into three sections

1. The Road to Windsor

John Neff didn’t just show up to run the Windsor Fund and make it a leading performer. He first learned his trade at the trust department of National City Bank in Cleveland, Ohio.  The first section of the book describes his entry into the professional investment world with the trust department and his move to Windsor several years later.

The personal story is very compelling.

2. Enduring Principles

While others may describe him as a value investor or a contrarian, John Neff considers himself a price-earnings investor.  He used p/e as a yardstick to measure the relative value of companies - a way to compare apples to apples.

Most of the stocks Windsor bought had p/e ratios 40% to 60% below the market.  Neff indicated that sometimes these were hard to find but they always existed because “the market’s boundless capacity for poor judgment ensures a steady supply of out-of-favor candidates”.

His investment style considered the following principal elements:

• Low price-earnings (p/e) ratio
• Fundamental growth in excess of 7%
• Yield protection
• Superior relationship of total return to p/e paid
• No cyclical exposure without compensating p/e multiple
• Solid companies in growing fields
• Strong fundamental case

An important point is the emphasis on total return (growth plus yield), not just growth. Another key point is the relationship of total expected return to the current p/e.

Windsor used the criteria in the list as a mechanical investing approach to reduce the number of stocks to consider. The resulting pool of stocks was used for stock picking.

NOTE: Using a stock screener, an investor can implement these criteria to screen out the undesirable (from Neff’s point of view) stocks.

Measured Participation

Neff outlines how Windsor allocated their assets across four broad classes of growth.  Cyclicals and mature growth made up two of the classes. The other classes were a little fuzzy but tended to market cap and growth rates.  The criteria for “less well known” growth stocks were well defined in the book.

Tracking stocks and knowing when to sell

Books on investing which only discuss how to buy stocks should not be on a “best” list. John Neff on Investing not only describes selling stocks but describes a checklist to track how well the stock is holding up (relative to the buy criteria). When targets are reached (or the fundamentals fail), selling the stock should be considered.

3. John Neff's Market Journal

The last section is an interesting journal of the market from 1970 through 1993 narrated by someone who was in the market at the time. His style of investing is illustrated with some of the investing decisions made by Windsor during this period.

This is a keeper. If you can’t borrow it and don’t own it, buy it.

Neff, John with Mintz, S.L. John Neff on investing (John Wiley & Sons, Inc, 1999).

About the author of John Neff on investing

During the 31 years of his leadership, the Windsor Fund outperformed the market 22 times while posting a 56 fold return. The annual performance advantage the fund held over the S&P 500 during his tenure was 3½ percent.

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