Growing Rich - Arabictrader.com

Rule 8
BE WILLING TO CHANGE
Roy Papp is clearly one of the oldest active portfolio managers in
the investment business today, even though he’s only in his early
seventies. By contrast, the average mutual fund manager is around
40. Unlike many of his generation, Papp is continually altering his
investment process to keep up with the times and changing market
conditions. “A lot of older investors don’t accept the new world, and
they’ve been wrong for years,” he says. “Benjamin Graham was really
the first stock analyst in the 1930s. He’s the father of the CFA and
was everyone’s hero. If you followed his advice, you would have had
trouble buying stocks after 1949. Things change. His teachings are
now somewhat outdated.”
KEEPING UP WITH THE TIMES
As an investor, you must always be willing to alter and refine your
investment process and beliefs, since the world is constantly evolving.
In a letter dated January 1, 1977, headlined “Views from Beautiful
Downtown Manila,” Papp told his clients, “Being halfway around the
world, I am completely out of touch with the thinking of the professional
investment community and thus have reconsidered my own
criteria. I believe stocks should be bought for their total return, which
consists of dividends and appreciation. The less dependable the appreciation
becomes, the more important the dividends should become. I
think this shift has begun and will continue.” At the bottom of the
letter, he lists the 11 characteristics he seeks in every stock he buys,
among them, being established 20 years or more, a price/earnings
ratio of around six or seven times earnings, a yield of 6 percent, and
a market price below book value. Like Graham, if Papp followed his
own teachings from back then, he’d be sitting in cash, and avoiding
stocks like the plague. That’s why today he adheres to very few of
these original 11 rules.