Chapter Five

Is There a Right Way to Invest?

Comparing Investment Styles

I can still recall how much grief I received in 1999 from various investment critics when I refused to pay exorbitant prices for technology stocks. The share prices were unreasonable, making valuations extremely expensive and unjustified. There was a clear disconnect between earnings and stock prices. Yes, the funds I managed suffered some short-term underperformance, but over the long term, it paid off when those technology stocks crashed. It pays to look (or in this case, study) before you leap. I must say that I wasn’t surprised when the bubble burst in 2000, when investors punished companies that failed to deliver expected profits by dumping their stocks. Investors who withstood the pressure and temptations of investing during those times of “irrational exuberance” were rewarded.

Too much time has been used up over the years by trying to determine which investment style is the most successful. All kinds of terminology have sprung up to describe the strategies employed: “technical,” “fundamental,” “active,” “passive,” “bottom-up,” “top-down,” “value,” and “growth.” Instead of rehashing the debate, I’ll outline my personal investment approach and explain why I think it makes sense for any equity investor.

Value versus Growth Orientation

Sir John Templeton once said that there was a tendency for too many investors to focus on “outlook” or “trend.” It was his belief that more opportunities could be uncovered ...

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