John Neff on Investing

This critical concept warrants repetition. The market exercises surprising intelligence in at least one respect: Peak cyclical earnings never command peak p/c ratios. In other words, p/e ratios do not expand as if cyclical stocks were grm~ th stocks. As pricing strengthens, a burst of enthusiasm precedes the upsurge in earnings. Seasoned investors

Absent stunning growth rates, low p/c stocks can capture the wonders of p/e expansion with less risk than skittish growth stocks. An increase in the p/e ratio, coupled with improved earnings, turbocharges the appreciation potential. Instead of a price gain merely commensurate with earnings, the stock price can appreciate 50 to 100 percent.

PICKING STOCKS CONSTITUTES the easy part oflowp/e investing. Dwelling successfully in woebegone regions of the market is a different story. Until results surface, few investors can muster the courage to buy down-and-out stocks that evoke blank stares more often than envy. Once results become visible, of course, the opportunities usually have passed

Whereas growth stocks are expected to increase earnings steadily, the trick with cyclical stocks is to catch them at just the right moment-after one cycle has decimated the stock price, but before improved earnings become apparent to everyone. '"'hen purchases were timed right, Windsor began selling just as demand picked up.

In classic fashion, frantic efforts to correct the underperformance only compounded Windsor's plight. Windsor had succumbed to infatuation with small supposed growth companies without sufficient attention to the durability of growth.

-VA'indsor's roller coaster experience with Citi underscored a crucial point: investment success does not require glamour stocks or bull markets. Judgment and fortitude were our prerequisites. Judgment singles out opportunities, fortitude enables you to live with them while the rest of the world scrambles in another direction. Citi exemplified this

A low p/e strategy typically makes maximum mone} six to nine months before cyclical companies report better earnings. Predicting that point will tax an investor's understanding of an industry's dynamics and of overarching economic considerations.

I wasn't uncomfortable going into retirement. I had given Windsor my all. I was going out while I still had a lot left, which had been my intention.

For the unprepared, meeting John Neff can be a "disaster." Those who meet Neff's standards appreciate thatJohn answers his own phone ("Neff!"), and he always gives as good as he gets, or better, in both information and insight. Neff's rigorous discipline in "doing his homework" has one important consequence: His portfo