FACT SHEET GROUP

Claudio Romani | Analyst

Invest Like… claudio.romani@mba.mbs.ac.uk

Gino Wang | Analyst

JOHN NEFF
yao-hsien.wang@mba.mbs.ac.uk
Jeff Zhang | Analyst
zhe.zhang@mba.mbs.ac.uk
Ronald Edward | Analyst
ronald.edward@mba.mbs.ac.uk

Background
John Neff is a legendary Timeline

investor and mutual fund

manager. He is recognised as
the "investor's investor“.

MAJOR ● In 1964 – 1995: Windsor’s annual return averaged 13.7% per year, 3.1% more than S&P 500
● In 1984: Bought a huge stake in Ford Motor. The stock more than tripled within 3 years.
SUCCESS ● In retirement: Made money by shorting the Nasdaq during the tech bubble.

● In 1964 – 1995: Underperformed the S&P 500 for 10 of 31 years, twice stringing together 3
consecutive years of nearly 40% cumulative underperformance.
FAILURES ● Prior to Black Monday (1987): Could not find anything to buy and held 20% of portfolio in
cash. Received many angry shareholder letters . (It turned out to be an advantage)

Investment Philosophy Valuation Techniques

“ I've never bought a stock unless,
in my view, it was on sale”
● A value investor and a contrarian
● Focus on beaten down and unloved stocks, always
be patient.
● Low Price to Earnings (P/E) equity strategy.
 P/E ratios between 40% - 60% of market
average.
 Sales growth between 7% - 25% per year.
● Low-tech security analysis.
 Research through the company’s books.
 Analyse the work of management.
“Value is in the eye of the beholder.
Low P/E is easily calculated and definitive.”
● Low P/E Ratio: single digits.
● “Cheap” profile.
● Earnings growth: 7% - 25%. More than 7%
indicated unappreciated signs of life, whereas
greater than 25% might indicate higher risk.
● Free cash flow. Cash left over after taking care of
capital expenditures over the last 2 years is
positive.
● Operating margins. Better than current industry
medians over the last 2 years

Risk Management & Exit Strategies

RISK ● Lowered the risk through an effective stock picking procedure.

● Took advantages of some inefficiencies of the stock market by selecting decent
MANAGEMENT companies in decent industries with low P/Es

● Holding period of three years average.

EXIT ● Based on his view, there are two basic reasons to sell:
STRATEGIES  Fundamentals deteriorate.
 The price approaches or matches the expectations

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Special Traits
Perseverance. To regularly, and over a long
Focus and detailed in search for attractive
period, go against prevailing wisdom goes
stocks.
against instinct.

Courage to buy down-and-out stocks. Patience to cope with the delay there may be
Prepared to accept the risk of embarrassment in benefiting from the market coming around
of being different or failing unconventionally. to his point of view about a stock.

Ability to stand against conventional market Reflective and have a sense of stock market
opinion and make up his own mind about a behaviour to give the investor the perspective
stock. required to assess and take intelligent risks.

Top 2 Stock Picks from FTSE 100 Based on Neff’s Strategy

• Low P/E Ratio: 40-60% Below Market

• Total Return [Annual Earnings Growth + Dividend Yield] to P/E > 1
• 5 Years Revenue CAGR: 7-25%
• 1 Year Net Income Growth: 7-50% (*)
FILTER CRITERIA • 2 Years Positive Free Cash Flow

Notes:
• P/E FTSE 100: 25.2
• (*) Neff use 7-25%
• Data: Bloomberg (12/10/2017)

PSN (P/E : 11.99) BDEV (P/E : 10.89)

• UK based holding company. • UK based holding company.

• Engaged in house building within the UK.
• Trades under the brand names of Persimmon
Homes, Charles Church, Westbury Partnerships
and Space4.
• Build & sell homes in 400 locations within the
UK.
• Engaged in acquiring and developing land,
planning, designing and constructing residential
property developments and selling the homes,
which it builds throughout Britain.
• Operates in two segments: Housebuilding and
Commercial developments.

©2017 Group 4
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