John Neff: Vanguard’s Architect of Value-Centric Investment

John Neff is a name resonating deeply in the finance world. Due to his successes with the Vanguard Group, the second-largest asset management firm in the world, Neff stands out as one of the most famous investors in history. But who was John Neff, and how did he become such an integral figure at Vanguard?

Celebrated as one of the greatest value investors in history, John Neff's life was imbued with learning, determination, and a deep curiosity for business and investing. Before entering the investment world, a series of life experiences shaped him.

Neff was born in Ohio on September 19, 1931. The foundational elements of his character, especially his discipline and curiosity, began to manifest during his teenage years. He came of age in a tumultuous period, as the world was recovering from the Great Depression and stood on the brink of World War II. These formative years undoubtedly influenced his views on finance, value, and resilience, just as they famously did for Warren Buffett, who was born roughly one year before Neff.

John Neff’s professional finance journey began when he started working for National City Bank. However, his career took a significant leap forward in 1964 when he became the portfolio manager of the Vanguard Windsor Fund. Under his stewardship over the next 31 years, until his retirement in 1995, the fund averaged a 13.7% annual return and outperformed the S&P 500 by 3.1% per year on average.

Neff’s investment approach centered on seeking out undervalued or unpopular stocks that many investors overlooked. He favored stocks with a low P/E ratio and above-average earnings growth potential, similar to the philosophy of Benjamin Graham, often referred to as the father of value investing.

His tenure at Vanguard Windsor wasn't solely defined by impressive numbers. Neff's approach to value investing became a blueprint for many seeking long-term success in the stock market. His philosophy was primarily grounded in the following principles:

• Be Disciplined: Neff emphasized the significance of self-discipline tied to investing, and argued that this was crucial in order to remain diligent, focused, and true to one’s investment strategy.

• Take Risks: He frequently argued that avoiding risks could result in missed opportunities. Neff believed it was crucial for investors to dare to take risks, which in this context could be interpreted as making bigger bets to maximize returns. However, he also emphasized that risk-taking should never be based on emotional or impulsive decisions.

• Find Value: Neff saw value in beaten-down or unloved stocks. He believed that, over time, the market would recognize these undervalued assets, leading to rising stock prices — especially for companies trading at low P/E multiples despite performing well.

• Study the Industry: John Neff once said that a wise investor always studies an industry, its economic structure, and continually seeks opportunities that offer the best deals, regardless of the sector.

The association between John Neff and Vanguard wasn't solely limited to the Windsor Fund. He played a pivotal role in shaping Vanguard's ethos. As of 2023, Vanguard ranks as the second-largest asset management firm globally, with assets under management (AUM) of roughly $7.5 trillion — second only to BlackRock. Notably, the firm's investing approach remains deeply rooted in the value-centric and long-term strategies that Neff initiated during the 1960s.

Born in challenging times, Neff's resilience, discipline, and curiosity led him to become one of the greatest value investors ever known, with an approach with similarities to legends like Benjamin Graham and Warren Buffett. His investment principles, which emphasized discipline, risk-taking, value identification, and industry research, serve as foundational guidelines for many investors even today. As Vanguard continues to thrive, its deep-rooted value-centric and long-term investment strategies stand as a testament to Neff's enduring influence. He may no longer be with us, but John Neff's impact on the financial world will be felt for generations to come.