Roy Neuberger And Anti-Fragility
I enjoy reading biographies and autobiographies from the Investment Masters, successful business icons and interesting individuals. I recently read Roy Neuberger’s “So Far, So Good – the First 94 Years“. Born in 1903, Mr Neuberger was a founding partner of the investment firm Neuberger & Berman. Mr Neuberger was a mentor to Jim Rogers and counted Alfred Winslow Jones [credited with starting the first modern hedge fund] as a client. At the time of writing he had spent 68 years on Wall Street. In that time, he’d never had a down year!
So Far, So Good: The First 94 Years by Roy Neuberger
While the majority of the book is devoted to his love of art, there are nuggets of investment wisdom throughout including Chapter 11 which outlines the “Ten Principles of Successful Investing“.
What I find most insightful are the lessons and ideas that contribute to investment success that have remained constant over a long period of time. In the terms of Nicholas Nassim Taleb, these ideas are “anti-fragile:” In his book of the same name, Taleb notes ..
“If a book has been in print for forty years, I can expect it to be in print for another forty years. But, and that is the main difference, if it survives another decade, then it will be expected to be in print another fifty years. This simply, as a rule, tells you why things that have been around for a long time are not “aging” like persons, but “aging” in reverse. Every year that passes without extinction doubles the additional life expectancy. This is an indicator of some robustness. The robustness of an item is proportional to its life!”
The Ten Principles:
1) Know Thyself – Mr Neuberger advises that before you begin studying companies for investment study yourself. Emotion is the great undoing of most investors and it’s important to understand your own strengths, weakness, fears and biases.
2) Study Great Investors – Mr Neuberger advises, that while you should study the great investors, you should not follow them blindly. You must find a style that is appropriate for you. Mr Neuberger cites numerous examples (eg Warren Buffett, Ben Graham, Peter Lynch, George Soros), and all (with the exception of the private investors) feature prominently in the Investment Masters Tutorials.
3) Beware of the Sheep Market – Mr Neuberger recommends not falling in with the crowd. He cites the importance of doing your own research and choosing stocks based on merit not crowd behaviour.
4) Keep a Long Term Perspective – while the Wall Street community appears to be obsessed with finding out what is happening to corporate earnings from minute to minute, Mr Neuberger recommends keeping a long-term perspective. This is a common trait amongst the Investment Masters and is commonly referred to as “time arbitrage”. He recommends 4 criteria that stand the test of time (1) a good product (2) a necessary product (3) honest, effective management, and (4) honest reporting.
5) Get in and out in time – timing might not be everything but it is a lot. Mr Neuberger notes timing is partly intuitive and partly contrary. He advises additional caution in bull markets and counsels to be quick getting out when you’re wrong.
6) Analyze the companies closely – Mr Neuberger recommends analysing company’s management and assets. The trick is to find growth stocks before others and he warns against paying high P/E’s for stocks.
7) Don’t fall in Love – Mr Neuberger highlights the need to be sceptical and flexible, not stubborn, about a stock. The last thing you want is to fall in love with a security.
8) Diversify, but don’t hedge [short] – Although Mr Neuberger did indeed short stocks himself, he recommends it be done only with the help of someone experienced. He also suggests diversifying your investments.
9) Watch the environment – by environment, Mr Neuberger is referring to the general market trends as well as the world outside the market. He advocates the need to adjust to market conditions in which you are operating. He proffers watching energy supplies, auto sales, economic conditions and interest rates.
10) Don’t follow the rules – Finally, Mr Neuberger suggests you find your own style, learn from your mistakes and be prepared to change.