Another Amazing Insight!

GURUsPEAK : Ralph Wanger

Author of the immensely popular investing book, ‘Zebra In Lion Country’, Ralph Wanger’s investing style was simple. He isolated small Companies with financial strength and passionate managers that ran businesses that could be understood. He did not deviate much from these simple tenets and thus made a lot of money for his funds. Here are some nuggets of wisdom:

* One lesson 1973-1974 taught us, repeated in 1987, is that bear Markets are great times to load up on stocks. In the third quarter of 1974, when the market was reaching its bottom, the weighted average price-earnings ratio of the Acorn portfolio was a mere 4.3 times estimated 1974 earnings. Stocks don’t get cheaper than that.

* Value stocks have another attraction: they are constantly in fresh production. A new batch often appears when the troubles of a few leaders taint a whole industry.

* Trying to sell an illiquid stock in a down market brings to mind the galley slaves in Ben-Hur, chained to their bench while the ship sinks.

* Value investing is basically based on a static analysis, a concentration on value right now. Your value investor might wear a T-shirt that proclaims ‘We don’t pay for the future.’ The growth investor thinks about where the company will be in five years.

* When people ask how we’ve managed to get our results [at Acorn], I tell them it’s not by avoiding disasters, because I have had my fair share of them. That’s understood with small cap investing. But if you manage to own some stocks that go up ten times, that pays for a lot of disasters, with profits left over.

* You can’t make five or ten or twenty times your money if you don’t hold on to stocks. Most people are delighted when a stock doubles, and quickly sell to lock in their gain. If a company is still performing, let its stock, too, continue to perform.

* Since the industrial revolution began, going downstream - investing in businesses that will benefit from new technology rather than investing in the technology Companies themselves - has often been the smarter strategy.

* The best assurance of continued growth, and high profit margins, comes back to this: the company should have a special niche in the marketplace, so that sales don’t depend on offering a commodity item at a lower price than the competition’s. It should, to a degree, dominate that niche....

The best company in a marginal industry is worth more than the third-best company in a major industry. I’d rather own the shares of Hokuto, the leading mushroom grower in Japan, than of Mitsubishi Motor or Subaru.

* Glamour has nothing to do with a niche’s appeal. A dull business run by a good businessman is far better than a glamorous business with mediocre management. And even if the glamorous business is run by a genius, often, in that kind of industry, its competitors are also geniuses, so nobody has an advantage, as I’ve commented about high-tech Companies.

* Good management to Wall Street means nothing more than a company with three consecutive quarters of rising earnings. Make it four quarters and you have great management. But exciting performance numbers by themselves aren’t enough to qualify managers as superior, at least not in my book. One good year or two could be a fluke. Or maybe current management’s predecessors set operations up so well that the incumbents haven’t had time to wreck everything.

* Managements can be guarded, especially if they know we [Acorn fund] own a lot of their stock. But their competitors will usually talk freely about them. It’s like trying to find out about a young lady you are interested in. If you ask her mother, you are certainly going to get a different perspective than you would if you asked the boyfriend she has broke up with. We like to hear what the boyfriend has to say.

* No mutual fund manager who relies on market timing has kept his job for fifteen years. Individual investors who try to time the market will be tossed on the same horns.

* Small is good, micro is not. For the littlest Companies, it’s like auditioning for the chorus line: one misstep and you’re out. I’ve made it a practice to stay away from the start-ups, the tiny techs, the near-venture-capital situations. I want Companies that are established and whose management have proven, at least thus far, that they know how to run a company.

* Deciding on an investment philosophy is kind of like picking a spouse. Do you want someone who is volatile and romantic and emotional, or do you want someone who is steady and trustworthy and down to earth. If you want a successful investment career, you’d better bind yourself to a style you can live with....