Chasing Value: The Very Best Investors
To that end, let us start with the very best investors, and those that had a profound influence on me and contributed to my investment acumen in a meaningful and profitable way. It has to start with "my pal Warren": Warren Buffett that is, the chairman of Berkshire Hathaway (BRK.A and BRK.B). Say what you will about his recent issues regarding David Sokol's improprieties, it is highly improbable the world will witness again the 50-year run Buffett has had.
Buffett gave me the courage to trust my own research; to invest when others are fearful; to be patient, and that reversion to the mean is more reliable than most things you can observe in an inflated market.
A shout out also goes to Peter Lynch, the retired manager of the Fidelity Magellan Fund, one of the most successful funds of all time.
Lynch gave me many examples of what to look for in a stock bringing some clarity to an often muddy picture. One example that always stands out in my mind is what I will call the data-versus-doughnuts analogy. If you own a technology stock you will be depending on the company's ability to invent and keep on inventing. If a competitor comes out with something like an iPhone or iPad, it changes the market instantly. However, If you own a chain of 150 doughnut shops on the East Coast and a competitor with a better, cheaper product has 150 stores on the West Coast, you would have years instead of months to prepare for the competition.
The other thing that stands out from Lynch is his PEG ratio, or the price-to-earnings-to-growth metric. It is not a precise tool but it is very useful one. It reduces the conflict between value versus growth investing by establishing a correlation between the two.
Another person that I have learned from is John Templeton. He too invested when there was "blood in the streets," buying a pile of stocks for pennies on the dollar in 1939. It got me to consider buying Newcastle Investments (NCT) for 60 cents a share when the market, and all investors, were in pain. It is trading around $6.00 a share now.
Recently I have been reading up on more contrarian investors. The best book on the subject to me is by David Dreman, the very comprehensive and comprehensible Contrarian Investment Strategies - The Next Generation. In it he reviews various investment strategies and makes a case for value investing with a very contrarian slant, just like Buffett, Lynch, and Templeton. There are many more great value investors and plenty to read on the subject. If you want to be the best you must learn from the best, reading everything you can get your hands on.
In my most recent investment presentations, there is a "slide" that has two columns. The one on the left is a list of great investors including the aforementioned and many more, such as John Paulson, Bruce Berkowitz, Carl Icahn, Kerk Kerkorian. The column on the right is a list of investment concepts. They include day trading, technical analysis, Elliot Wave Theory, penny stocks, quantitative analysis, indexing, momentum investing, market timing and more. I like to ask the audience if they can link anyone from the left column to anything on the right and look at their puzzled faces; because they can't. None of the most successful investors uses these ideas. They do one thing and one thing only --- THEY BUY CHEAP!
This part of the presentation is always the most intriguing because what it underscores is that the really great investors truly zig when everyone else zags. The column on the right probably includes 95% of the investment world, pros and amateurs alike. For some reason people want a short cut and will not do the work. To me it is like professing to be very interested in physics, yet skipping the chapters on Newton and Einstein.
When I started writing for AOL, a note about my best investment was included in my bio, that would be my wife. Our 30th anniversary is coming up and I still find her amazing in a hundred different ways. In the stock market my top five holdings have changed a little. Intuitive Surgical (ISRG) and Southern Company (SO) are still in the mix but three new stocks have advanced. They are EZcorp (EZPW), Royal Dutch Shell (RDS.A) and Prospect Capital (PSEC).
Having posted over 1,200 articles, it is hard to determine what I might bring to readers' attention that was most timely or valuable. The following is a small sampling of some from a few years back and some more recent:
- One day after this post was the first public announcement that Buffett was buying railroads Serious Money: Freight Railroads - BNI, CSX, UNP & more
- Calling the bottom of the market on the exact day, March 9 2009 was nice Nostradamus was a punk! Have we reached bottom?
- Two days later I discussed why the market would bounce, and it did. Is the stock market spring loaded? Could it move 3,000 points higher now?
- A few months later when Dr. Doom was cautioning investors I tookthe opposite position and was correct. Waiting for Roubini will cost you!
- Last summer I told our readers buying the worst stock names would beat the market. I have since done three popular follow-ups and this call was right on -- they did and they are. Chasing Value: Buying a Toxic Portfolio -- BP, RIG, C, GS, BAC and GE and the most recent follow-up Chasing Value: Toxic Stock Update #4 -- BAC, BP, C, GE, GS, RI.
- Last December I made the following proclamation which became absolutely true. Chasing Value: You Must Own Defense and Oil for Safety
- My stockpicks beat the market 4 out of 5 of the years I have been blogging: Chasing Value: 2011 Picks Dust the S&P after one month and Chasing Value: 2011 Stock Picks Q1 Review -- A Platform for Success.
- Two weeks ago I posted Chasing Value: EZCorp Still a Bargain leading to yesterday's Chasing Value: EZcorp Still Besting Apple
Sheldon Liber is an architect and the CEO of Chasing Value™ Asset Management, Inc. He writes the columns Chasing Value™ and Serious Moneyand is on twitter: @ChasingValue. Disclosure: Mr. Liber currently owns shares and options of BRK.B, EZPW, ISRG, PSEC, RDS.A, and SO.