John Neff, along with Peter Lynch and Bill Miller, are recognized in the American investment community as legends of mutual funds.

As managing partner of Wellington Management, Neff managed the groundbreaking Windsor Fund from 1964 until his retirement in 1995.

Neff generated an astounding 5545.6% total investment return during his 31 years managing the Windsor Fund, compared to the S&P 500's return of 2229.7% over the same period.

Inside John Neff's Astonishing 55x Returns in a Remarkable 31-Year Victory

How did Invest Legend John Neff Make such an Astounding Achievement? 

John Neff is known as a low P/E investor. He believes that stocks with low P/E ratios have a double profit margin, both the opportunity for greater upside and less risk of loss.

In his autobiography, Neff outlines seven components of his investment style using low P/E ratios:

• Low P/E ratios (meaning companies with P/E ratios 40%-60% below the market average)
• Over 7% underlying growth rate (companies with growth rates below 6% or above 20% are rarely selected)
• Guaranteed dividend yield (dividend yield is a plus)
• Excellent total return (= earnings growth + dividend yield), with a good relationship to the P/E ratio paid (John Neff likes to buy stocks with P/E ratios equal to half the total return)
• Never hold cyclical stocks unless compensated by a low P/E ratio
• Solid companies in growing industries
• Strong fundamental support

On the other hand, there were only two ultimate reasons for the Windsor funds to sell their stocks:

• Fundamentals turn negative;
• Price reaches a predetermined value.

Some highlight excerpts

Some people describe Neff as a "value investor" or "contrarian investor", but he prefers to call himself a "low-priced income investor".

Unlike many value investors similar to Warren Buffett, Neff is obsessed with predicting the direction of the economy and the future earnings of specific companies, and he holds individual stocks for an average of three years. However, there are some similarities, such as a focus on return on capital.

When it comes to "when to buy" and "at what price," Neff's approach is to predict a company's earnings after several years and then to forecast the stock's P/E ratio after several years under normal market conditions.

After determining the earnings and P/E ratios, the target price of the stock after a number of years is also determined. After that, he calculates the discount rate of the stock's current market price to the target price and subtracts this discount rate from 1 to get the stock's appreciation potential rate.