John Buckingham: The Education of a Value Investor

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As a student, John Buckingham would borrow a 40-pound Compaq computer from the University of Southern California library and precariously prop it on his bike and ride it back to his dorm room. There, he would run quantitative models in hopes of finding a $500 investment that could quickly net $10,000. While that quest proved elusive, he found better investments at what is now value shop Al Frank Asset Management, where he landed a job after graduation.

Al Frank, a self-taught value investor, schooled Buckingham in a much more lucrative philosophy: get wealthy slowly. Frank sought battered stocks with strong balance sheets and stuck with them for years, writing about them in the Prudent Speculator newsletter that he started. The picks generated long-term returns that earned him a spot among the country’s best stockpickers.

For the past 25 years, Buckingham, now 50, has edited the newsletter and overseen $3 billion in assets at Al Frank Asset Management in Aliso Viejo, Calif., where he has risen to chief investment officer. Buckingham uses quantitative models to sift through 2,800 U.S. stocks with a slew of value-oriented metrics and find stocks trading at notable discounts to where he thinks they will be in three to five years. From there, he relies on subjective analysis to assess a company’s competitiveness or management, resulting in a more eclectic portfolio than the typical value fund.

The newsletter’s picks have returned an average annual 11.6% over the past 15 years through 2014, beating not just the market but also Warren Buffett, according to the Hulbert Financial Digest, which tracks 200 newsletters. The small Al Frank fund (ticker: VALUX) has also beaten the market and 95% of large-cap value managers over the past 15 years but has lagged behind more recently due to some of its out-of-favor holdings in energy and mining. We recently spoke with Buckingham by telephone about why he thinks value stocks are poised to shine, the reason to hold on to battered energy stocks, and whyGilead Sciences (GILD) and Walt Disney (DIS) are appealing to a value manager.

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