'Value' Managers Dispute the Term

Mason Hawkins, chair of Southeastern Asset Management, an investment management firm that oversees the (LLPFX Quote)Longleaf Partners mutual fund, employs an equally strict discipline. The fund buys companies trading at discounts of 40% or more to the managers' estimates of the companies' intrinsic value. Hawkins and his team arrive at a company's intrinsic value using Benjamin Graham's tried-and-true discounted cash-flow analysis, as well as asset values and sales of comparable firms. Such criteria can be hard to meet, and the concentrated fund -- which usually holds just 20 to 25 names -- rarely has any positions in technology or other "growth" sectors. Even so, Hawkins balks at the term.

"Investments can't be divided into value and growth," Hawkins said. "It's insane to think that way. People think of growth and value in terms of stock prices. We think of them as companies. The stock price will tell you nothing about the company outcome."

Aside from assessing a company's intrinsic value, these buyers also assess the management.

"There's no question bad management will cause us to avoid a stock," Whitman said, adding that because his firm places such emphasis on solid financials, the management of those companies tends to be quite good. "There are trade-offs, though. Because we insist on such strong financials, we usually end up dealing with very conservative managements. So in the good times we sacrifice a little."

"We look for a management team that thinks like shareholders," Browne said. "But given the choice between good management and good financials, we'll take the good financials."

But beyond just finding the bargains, the managers noted, is the patience required to watch them turn around. "For the companies we invest in," Whitman said, "almost always the near-term outlook [stinks]."