Ralph Wanger made his money spotting trends rather than timing the market.
Ralph Wanger's record of out-performance is based on spotting trends while avoiding bubbles, and looking to foreign markets bargains.
Background and early career
Born in Chicago in 1933, Wanger earned bachelor's and master's degrees from the Massachusetts Institute of Technology, and joined the army on leaving MIT in 1955. After a brief career in the insurance business, he joined the investment firm of Harris Associates in 1960 as a securities analyst, and subsequently as portfolio manager.
Wanger is most famous for his management of the Acorn Fund, which he controlled from its creation in 1970 until his retirement in 2003. In 1992 he left Harris, taking the Acorn Fund with him, and set up Wanger Asset Management.
Track record
During his 33 years in charge of Acorn, he reportedly averaged a return of 16.3%, compared to just over 12% for the S&P 500 Index.
By paying attention to valuations, he even managed to make money while over-hyped tech stocks were collapsing, gaining nearly 17% from March 2000 to April 2001, when small cap growth stocks fell by 31%.
Investment style
To start with, Wanger believes that it's futile to attempt to time the market: "No mutual fund manager who relies on market timing has ever kept his job for 15 years. Individual investors who try to time the market will be tossed on the same horns."
But while we can't identify tops or bottoms in the market, we can identify trends in technology and business much more easily. And as a general rule, we should be looking to invest in companies that will benefit from those trends, rather than companies pioneering the changes. So, for example, instead of investing in companies inventing new computers, he invested in International Game Technology, which used these new devices to control slot machines.
He always prefers a smaller company dominating a niche market to a large company that is subject to intense competition, but the company shouldn't be too small: "Small is good, micro is not … one misstep and you're out … I want companies that are established, and whose management has proven, at least so far, that they know how to run a company."
And, of course, the price has to be right, but Wanger believes that new value shares are being created all the time, as attractive companies become the victims of image problems created elsewhere.
Which is not to say that they are easy to find; Wanger has no hesitation investing outside his native US, if that's where the bargains are to be found. "If you are a stock investor, you should be country-blind." This is a higher-risk strategy, and investors need to understand that. "Too many people assume that their money will be safe in places where they wouldn't drink the water."
This higher risk means that disasters will happen from time to time, with some shares being wiped out completely, and equities are not the right investments for anyone who gets upset by those sorts of losses. But these have to be weighed against the multi-baggers.
And obviously, if we are to reap the rewards of multi-baggers, we should not be tempted to sell too soon. "You can't make five or ten or 20 times your money if you don't hold onto stocks. Many people are delighted when a stock doubles, and quickly sell to lock in their gain."
Rapid gains like that rarely happen overnight, and Wanger's typical investment horizon is four to five years.
Although he officially retired in 2003, Wanger is still involved in the investment world, and acts as an advisor to his son Eric's investment management business, Wanger Investment Management.
Books by Ralph Wanger:
- A Zebra in Lion Country (1999)
More investing greats:
John Bogle | George Soros | Ben Graham | Jim Rogers | Warren Buffett | Anthony Bolton | Jesse Livermore | Jim Slater | Charlie Munger | Peter Lynch | Carl Icahn | Philip Fisher | Ken Fisher | John Neff | John Templeton | Mark Mobius | Neil Woodford | T. Rowe Price | Bill Miller | Robin Geffen | David Dreman | Ian Rushbrook | James Montier | John Paulson | Seth Klarman | Martin Zweig | Crispin Odey | Wilbur Ross | Bill Gross | Nils Taube
