Snippets and Highlights
- On the best time to buy stocks
This was the perfect scenario for the disciplined stockpicker to search his or her buy lists for likely prospects. The headlines were negative, the Dow Jones average had lost 600 points over the summer and the early fall, cabdrivers were recommending bonds, mutual-fund managers had 12 percent of their fund assets in cash, and at least five of my fellow panelists were predicting a severe recession.
- On his investment style
The fact is that I never had an overall strategy. My stockpicking was entirely empirical, and I went sniffing from one case to another like a bloodhound that’s trained to follow a scent. I cared much more about the details of a particular story—for instance, why a company that owned TV stations was going to earn more money this year than last—than about whether my fund was underweighted or overweighted in broadcasting...
What could happen is that I would meet with one broadcaster who would tell me that business was improving, and then he’d give me the name of his strongest competitor, and I’d check out the details, and often end up buying the second broadcaster’s stock. I followed scents in every direction, proving that a little knowledge about a lot of industries is not necessarily a dangerous thing.
- On style-drift and why it is dangerous
In fact, when a value fund does better than its rivals in a lousy year for value funds, it’s not necessarily any cause for celebration. (This also applies to growth funds or any other kind of fund.) It may be that the manager has gotten disenchanted with value stocks and has invested some of the money in blue chips or utilities. He or she has gotten frustrated with the value style, especially when it hasn’t been working. The manager’s lack of discipline may produce good results in the short run, but the benefits may be fleeting. When value stocks come back, this manager won’t be fully invested in them, and his or her shareholders won’t be getting what they paid for.
- On managing research teams
Knowing that the blame will be passed along to them, the analysts soon learn to protect themselves by not sticking their necks out. Instead of making imaginative recommendations to the fund managers, they prefer to tout acceptable, worn-out companies like IBM. Because they recommend acceptable stocks, they don’t get criticized as much when the fund managers have a lousy quarter.
Later, I presided over these meetings with a small kitchen timer, which I pretended to set at three minutes—the official time limit for any defense or explanation of a pick. In fact, I was setting the timer at progressively shorter intervals, until I got it down to a minute and a half
When you are openly criticized for your ideas, you may tend to hold back the next time... To avoid undermining one another's confidence, we allowed no feedback at our presentations—the listeners were free to follow up on the leads or ignore them as they chose.