Thursday, October 10, 2013

the Womack Strategy

Back in 1978, market observer and money manager John Train wrote an article for Fortune magazine titled, How Mr. Womack Made a Killing. The article should be mandatory reading for investors who seem to have an almost desperate need to learn how to buy low and sell high.

The article tells of a young investor meeting a man who never on balance had lost money in the stock market. In fact he had made quite an enormous amount of money over the years. The investor was not a fund manager or trader of great renown, but a farmer who grew rice and raised pigs.

Mr. Womack had a simple approach to the stock market. When he read in the papers that the market was down and the pundits of the day were predicting further collapse and calamity, he would take a break and sit down with a copy of the Standard & Poor's Stock Guide. He would find a bunch of solid dividend-paying companies with strong financials that had dropped to single digits and drive into town and buy a package of them. If they fell a bunch more, he would add to his package.

When he was done buying, Mr. Womack went back to the farm tended the fields and fed the pigs and did not spend much time thinking about stock except to cash his dividend checks. In a few years' time when the daily paper was full of exciting comments about the stock market and predictions of eternal prosperity, he would drive back into town and sell all his stocks.

Mr. Womack told his young friend that stocks were much like pigs. If he could buy them when prices were depressed and keep them until market prices were much higher, he stood to make much more money from his farming operations.


I was familiar with this story, but never thought of it as the "Womack strategy" (never realized the guy had a name).  I believe I first read about in John Train's book, The Craft of Investing, where it is included in the appendix.

The other thing I note now, is that in the last paragraph, Train writes "I remind the reader that although this feeling for the rhythm of markets is a useful one to acquire, it is ont the only strategy or even the best strategy.  Probably Mr. Womack would have done just as well by buying and holding growth stocks.  [like Berkshire Hathaway for example, had it been available at the time]

See Grace Groner and Hetty Green and Anne Scheiber as examples of long-term investors.

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