President of the Chicago-based Acorn Fund, run by investment firm Harris Associates, Ralph Wanger adopts theme-driven investment approach in smaller companies for the medium-to-long term. The Acorn Fund returned 17.2 per cent annually between 1970 and 1998, against a return of 14.4 per cent from the S&P500 index during the same period. Wanger recently summarised his stint at the fund in his book A Zebra in Lion Country. The book examines the virtues of staying with smaller, lesser-known companies. As the book explains, if a zebra hopes to find the best grass — the stuff that is not trodden by the world — the zebra must selectively stray from the safety of the herd on occasion. Investors must take a cue from this.
"Since the Industrial Revolution began, going downstream — investing in businesses that will benefit from new technology rather than investing in the technology companies themselves — has often been the smarter strategy.""Deciding on an investment philosophy is kind of like picking a spouse. Do you want someone who is volatile and romantic and emotional, or do you want someone who is steady and trustworthy and down to earth? If you want a successful investment career, you'd better bind yourself to a style you can live with."
"Trying to sell an illiquid stock in a down market brings to mind the galley slaves in Ben-Hur, chained to their bench while the ship sinks."
"Rather than build a broadly diversified stock portfolio, I believe in determining themes...and then identifying groups of stocks that reflect those themes .The Rubenstein Rule dictates that either a stock group is worth playing or it is not worth considering at all. (Arthur Rubenstein, the late, great pianist, was once asked to be a judge for a competition held in London. Told to use a scale of 1-20, Rubenstein gave all the students' recitals either a zero or a 20. There were no intermediate scores. When asked about this, Rubenstein replied, "Either they can play the piano, or they cannot." Wanger invokes the `Rubenstein Rule' as important to his own investment philosophy.)"
"Don't overpay, no matter how much you like a company. Invest in themes that will give a company a long-term franchise. Invest downstream from technology. Think and invest globally. Find stocks to own, not trade."
"What I don't want are me-too companies that rank fifth or sixth in their industry, because their profit margins will rarely be as good as those of the industry leaders."
"Assume that one of your eccentric friends who runs a large bank has just offered to lend you a great deal of money at about 10 percent interest, with which you may tender for all the stock of the company you are studying at the current market price. If you study the company and say `Boy, this is terrific! Give me the loan and I'll do it. I'll quit my job and go run that company. It's a tremendous bargain,' then, you probably have a good stock."