Vanguard Value Master

Every Wednesday at HX Research, we dedicate HX Daily to exploring the story and wisdom of legendary investors.

We decide on whom to write about in different ways. Often, it will be something we read recently, or it can be market news.

Recently, though, we have been going out and looking at the BIRTHDAYS of famous investors.

This has led us to write about several investors—whom we know of but did not know much about.

This brings us to this week’s subject – legendary value investor John Neff. 

Neff is most well-known for building the value-focused Vanguard Windsor Fund. Over his 31-year career running Windsor, he compounded at a +13.7% annual return versus +10.6% over the same period.

Neff was born in Ohio on September 19, 1931. After graduating summa cum laude from the University of Toledo, he joined the investment firm Wellington Management Company. 

Neff became well known in the 1970s and 1980s, when we saw the emergence of "star" mutual fund managers like Peter Lynch and Sir John Templeton. He was also known for his value investment style, which contrasted with many of the other star managers of his time.

Neff posted an admirable track record of consistency that stands out amongst his peers.

Here is some choice wisdom of his over the years…

"A lot of people can't bear to sell when a stock's price is going up. They're convinced that they've made a mistake if they don't hold out for the last dollar."

We often explain how the "sell high" part of the famous saying "buy low, sell high" is the hardest part of the equation.

When the greed kicks in, and you feel like you have figured it all out, it is hard to maintain the discipline of trading.

To "buy low," though, you need to position yourself to take advantage of opportunities. The "sell high" move is the key to this.

One last note on this—and this is maybe the hardest one—do not ever regret making a big profit!

Enjoy your wins and avoid your losses. That is the psychological key to sustainable success.

“Shortcuts usually grease the rails to disappointing outcomes.”

One of our key mottos is “Do the Work.”

Like anything else in life, the key to success is preparation. We are not advocates for doing work for work's sake, but studying and refining your process is necessary.

Think about the importance of your money and the amount of research you would do if you were buying a house or starting a new business.

Do the same amount – or even more – when investing your money.

“Buy on the cannons and sell on the trumpets.”

We think the "buy on the cannons" is the more powerful of the two.

We have had tremendous success during BEAR markets by putting our investors in a position to be able to buy during periods of maximum pessimism. Again, the "sell high" portion of the equation is necessary to put you in that position.

The biggest short-term returns in stock market history have ALL happened during these periods. Put yourself in a position to take advantage of them.

“Inflection points occur in the market, and around them, performance can suffer, but you have to stick to your guns.”

This is such an important statement.

Markets trend. That underlying trend should help define your investment process at the time.

The hardest part is that these trends eventually change, and it is not clearly obvious when these changes occur.

You need to have a process in place to deal with and adjust to these inflection points. These points can make or break your long-term investment success.

“But if you can’t roll with the hits, or you’re in too big a hurry, you might as well keep your money in the mattress.”

Adapting but having a short memory is a key to surviving in the stock market.

If you are unwilling to accept and learn from a loss while moving on, you will not ultimately be successful as an investor.

Losing is a guarantee in the stock market. Master losing, and you will set yourself up to win.