Thomas J. Feeney has been in the investment industry for over four decades. As the chief investment officer of both Marathon Asset Management Co. and Mission Management & Trust Co., there isn’t much of the financial world he hasn’t seen. As much as his schedule allows, he also breaks down his thoughts and strategies on his blog, Measure of Value.
Every other week, we’ll tap the insights of Tom to get a deeper perspective of what’s going on in the market and see through his eyes what the smart money is thinking about investments.
In our last interview, we discussed Tom’s background in the industry as well as his thoughts on the current market. This time, he gets a little more specific with insightful advice for aspiring investors.
We did, however, successfully buy four short-term bottoms between 2004 and 2008, in each instance with prices severely oversold. We were otherwise light in equity holdings, and we succeeded in boosting returns for the year in each of those instances.
We anticipated that a similar profitable opportunity existed in March 2009, but we never identified a point at which we saw risk and potential reward properly balanced. Clearly the potential to add to portfolio return existed, but we missed it.
An integral part of our investment philosophy is that we would always rather miss an opportunity than suffer a significant loss. While there will always be more opportunities, you will be ill-equipped to take advantage of them if you lose significant amounts of capital.
I strongly suggest that investors would spend their time far more profitably learning about the history of market valuations than trying to time market bottoms. Learning to recognize historically attractive valuations will provide a sound foundation on which to build a successful investment strategy.
HT: What advice do you have for investors looking to develop their own strategy?
TJF: The single most valuable tool in an investor’s arsenal is an understanding of what represents good value. One would certainly benefit from a thorough understanding of the fundamental investment principles espoused by such fathers of value investing as Benjamin Graham and David Dodd.
An essential complement to that understanding is a comprehensive knowledge on a macro level of what has represented attractive valuation levels for the overall equity market for over a century or more. Those levels are measured by such ratios as price-to-earnings, dividends, book value, sales and cash flow.
HT: What are some of the most common pitfalls for novice investors?
TJF: Just as we practice in our own investment approach, we likewise urge all investors to remain flexible. Invest when and where you find value, but don’t be afraid to retreat to safe cash equivalents when value is absent.
Beware of the herding instinct. Almost all of us feel more comfortable when we believe what most others believe. At extremes of both positive and negative sentiment, however, securities prices have a strong tendency to reverse course. The vast majority of investors are wrong at every major market turn. Find a data source to identify such extremes.
HT: There’s a common misconception that investing in the stock market can be done as a hobby or on the side. How much effort actually goes into managing individual investments?
TJF: Benjamin Graham titled his outstanding book The Intelligent Investor. Becoming an intelligent investor is certainly not easy. It takes years of work. Recognize, however, that if you try to invest without putting in that effort, you will be at a distinct disadvantage competing against those who have done the work.
The investment world has no minor leagues in which you can hone your skills against less developed competitors. In your ongoing education, I encourage you to find sources of guidance that don’t try to justify their own investment outlook. Attempt to gather data that both confirm and challenge your own expectations. Find data sources that evaluate pros and cons in both the economy and the markets.
If you don’t have both the time and the interest to do a thorough job of economic and market research, hire an investment advisor who evaluates data as you want them evaluated. Don’t simply select a manager based on past performance.
Make sure the manager’s philosophy and investment process are in sync with your risk tolerance and comfort levels. In an environment like ours today, make sure also that the manager fully appreciates the broad spectrum of possible economic and securities market outcomes.
Be sure to check back again for more of Tom’s thoughts. You should also visit his websites, Thomas J. Feeney’s Measure of Value or Mission Management Trust, for additional market commentary and investing advice.
If you have any questions or thoughts regarding his answers, feel free to share them in the comments. If they’re relevant, we may use them in a future post.
