Over 100 people attended Rutgers Cooperative Extension's fourteenth- and final- MONEY 2000 and Beyond conference in May 2004. The keynote speaker was David Winters, President, CEO, and Chief Investment Officer of the Short Hills, NJ-based Mutual Series funds. The Mutual Series funds are known for their value approach to investing. This means that these funds try to buy shares of companies for less than their true value. "This gives you are margin of safety if you can get a good deal," explained Winters.
Winters began his presentation by discussing the history of value investing. In the 1930s, legendary value investor Benjamin Graham co-authored a book called Security Analysis, which was followed by his classic book, The Intelligent Investor. These books have provided a blueprint for successful investing for over a half century. Unfortunately, the advice contained within them is often ignored. Winters quoted modern investment legend Warren Buffet as saying "The secret's been out since the 1930s and nobody's paid attention." Winters noted that the annual report of Buffet's company (Berkshire Hathaway), along with the books by Graham, are two of the best investing resources available. The annual report is an easy read and a copy can be ordered from the company's Web site www.berkshirehathaway.com.
Winters then described an emotionally unstable fictional character, "Mr. (or Ms.) Market," to discuss how the mood of investors affects stock prices. He noted that "in the short run, the market is like a voting machine and, in the long run, it's like a weighing machine." More than half of Winters' presentation was devoted to a question and answer session with participants. In response to a question about how to take advantage of "Mr. Market," he advised investors to think for themselves and not get swept up in short-term market frenzy.
Being a market contrarian also helps. "When people are depressed about the stock market is the best time to buy," he explained. He also advised conference attendees not to buy "hot" companies that are in the news and are trading at a high valuation ("If it's on the cover of Newsweek, that's a really bad sign"). Instead, it is best to buy companies (or funds that invest in companies) when stock prices are "on sale." Further, he noted the importance of educating yourself about investments such as stocks and funds. "You can't hand yourself unmercifully over to a broker."
Someone asked about getting help reading financial statement. Winters replied "You need to take a course or read a book on accounting." He also congratulated an investment club member at the conference for learning about investments through the NAIC (National Association of Investors Corporation). Winters also lamented that "there is a barrage of information out there." He advised attendees to "Find what works for you and use it." Readers of company annual reports should pay particular attention to the footnotes. He gave two examples, one of a distilling company with thousands of barrels of whiskey in reserve (good) and another, a major bank corporation, with losses incurred due to risky derivative trading strategies (cause for concern).
Winters recommended paying the right price (read: on sale) for stocks and buying regular amounts at regular time intervals (dollar-cost averaging) and holding them until the company rebounds and the stock increases in value. His presentation concluded with a discussion of seven things that investors should explore when selecting a company to invest in:
Ask what business a company is in. What do they do and do you understand it?
What is the progression of company earnings over time? Be suspicious of growth curves that are too smooth or too fast.
Look for rising dividends over time.
Look at a company's "BS meter." In other words, does management seem to care about the company and its shareholders and does what they say in annual reports make sense?
Beware of high corporate debt. Stay away from highly leveraged companies.
Read company annual reports and proxy statements carefully. Are company managers and directors lining their pockets with outrageous compensation packages? "Too many photos in the annual report is a warning sign," said Winters. "They may be wasting your money."
Look who is on the board of directors. Are they truly independent of company management and capable of representing shareholders?