Value investors have deep convictions on what they think offers value. And to minimise the chances of them being wrong, they allow for a significant 'margin of safety' - that is, the securities they buy into have to be so undervalued that even if things get much worse, there is not much room for them to fall further.
Value investing requires patience. It requires independence of thought. And because value investors have such deep conviction that what they buy is trading at below market value, even if the general market were to plunge, they don't panic. In fact, they would see this as an opportunity to buy more.
As a result of all these factors, value investors are said to sleep better at night. And conceivably, they are not so highly strung. Their stress level would be lower than those who chase after the market and whose mood swings along with it.
Perhaps all this explains why some well-known value investors live much longer than the average person.
Don't believe me? Let's see.
Benjamin Graham, father of value investing and mentor of Warren Buffett, is the author of Security Analysis and The Intelligent Investor. In Security Analysis, he advocated a cautious approach to investing. In terms of picking stocks, he recommended defensive investment in stocks trading below their tangible book value as a safeguard against future adverse developments often encountered in the stock market. A professor at Columbia Business School, he lived until 82.
David Dodd, also a professor at Columbia Business School and co-author of Security Analysis, lived until 93.
John Templeton was noted for borrowing money from family and friends when he was 27, to buy 100 shares of each company trading at less than US$1 (US$15 in current dollar terms) a share in 1939. He made many times the money back in a four-year period. He became a billionaire by pioneering overseas investment funds in the US. He died last year at 95, after devoting many of his later years to philanthropy.
Philip Fisher, author of the still-popular Common Stocks and Uncommon Profits, believed in long-term investing, in buying great companies at good prices, and then thumbing his nose at the taxman as he held, and held, and held. His most famous investment was his purchase of Motorola, a company he bought in 1955 when it was a radio manufacturer, and held until his death in March 2004 at age 96.
Another Philip, Philip Carret, the founder of Pioneer Fund, was also a hero of Warren Buffett. In his book A Money Mind at Ninety, he said he inherited his 'money mind'. He died at the age of 101. David Tripple, former chief investment officer of Pioneer Group, said: 'In 101 years, I don't think he ever once got sucked up into a fad or frenzy.'
Now let's look at some of the great value investors who are still active today.
Warren Buffett needs no introduction. He is 79 this year, and is still deploying his billions, most recently a US$26 billion bet on Burlington Northern Santa Fe railroad. He described the purchase as an opportunity to buy a business that's going to be around for 100 or 200 years.
Charlie Munger, vice-chairman of Berkshire Hathaway, has exerted key influence on the success of Mr Buffett's enterprise over many decades. He is 85 this year.
Buy and hold
Martin Whitman is founder and portfolio manager of Third Avenue Value Fund. He is a 'buy and hold' value investor. He buys stock in companies he thinks have strong finances, competent management and an understandable business. Also, the company's stock must be cheap. He generally sells an investment only when there has been a fundamental change in the business or capital structure of the company that significantly affects the investment's inherent value, or when he believes that the market value of an investment is over-priced relative to its intrinsic value. He is 85 this year.
Recently, the Financial Times interviewed two active investors who are well past 100. Irving Kahn is the oldest active money manager on Wall Street at 103. Mr Kahn says he ignores market gyrations and typically holds stocks for at least three years and up to 15. His firm, Kahn Brothers, compares its philosophy to tending an orchard with different types of fruits, some of which ripen more slowly than others. Mr Kahn incidentally was Mr Graham's first teaching assistant and helped him with Security Analysis. Like Mr Graham, Mr Kahn seeks unloved and obscure stocks, eschewing high fliers.
Roy Neuberger and the company he founded, Neuberger Berman, also subscribe to similar principles. Mr Neuberger retired at 99 and today, at 106, is still consulted regularly by his 68-year-old protege Marvin Schwartz. The latter credits Mr Neuberger with providing appropriate perspective during recent hard times. 'In almost each and every instance, he advised us to buy in what would be a passing negative period,' Mr Schwartz was quoted by FT as saying.
Opportunity in crisis
Both men saw the recent shake-out in global markets as just another opportunity to buy good companies cheaply.
The website Monevator also recently explored whether being a great investor also means you'll live longer. The article postulated why some of them lived to such a ripe old age. Among the reasons given were:
- Job satisfaction - People who are happier and lead productive lives have been shown to live healthier, longer lives. There's no doubt all these investors loved investing.
- Active mentally - Lots of old people in Japan now do brain training to ward off Alzhiemer's disease and other degenerative brain ailments. What could be more testing than trying the impossible - beating the market through stock picking?
- Eustress - the flipside of distress, eustress is a form of positive stress, associated with achieving in life.
- Intelligence, good upbringing and better health care - all the investors enjoyed these.
But wait. Old rich investors could be a red herring. Perhaps you need that long a time horizon to really see the magic of compounding, Monevator said. Say someone is 55 and has US$7 million today. If he lived till 85, and if he could achieve 20 per cent a year, he would be worth US$1.7 billion - a portfolio big enough to be noticed.
A friend, however, speculated that it may not be value investing that explains longevity: 'It's their lifestyle and the exercise they get. Graham is reportedly a flirt. He would write poems to ladies. Buffett and Munger both had two wives. Buffett is also close to Katherine Graham of the Washington Post and world bridge champion Sharon Osberg.'
My take is that their longevity stems from their love of life in general. In a tribute to Philip Carret, the Outstanding Investors Digest wrote: 'Although he died at the age of 101, which many would consider to be a ripe old age, he was as young at heart, vital and as active to the last as anyone we know.'
I'm convinced all the rest exhibit the same zest in life as well.
- The writer is a CFA charterholder
