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Pzena Investment Management's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Rich Pzena

Thanks Greg. As I look back on 2011, I can’t help but feel drawn back to what it felt like in early 2000 for value investors. Back then momentum had driven Internet stocks to astounding valuations and value investing had lagged for almost five years. Investors were proclaiming the depth of value and a number of long term value investors closed shop, while others changed their strides, of course exactly at the wrong time.

Today investors are once again question whether value investing really works. Despite a strong rebound that started in November 2008 and lasted through early 2011, the market correction and value under performance during the latter half of the last year has rekindled bad memories of the financial crisis and let investors to question whether identifying good, but under valued companies still works, in a world that seems driven by global macro events rather than fundamentals. Investors have fled end mass to safety as the financial crisis in the euro zone creates massive uncertainty and fear that it’s effects will spill over and affect the global economy.

But taking a step back from the day-to-day market noise provides a useful perspective in which to assess recent market activity and possibly even identify hidden opportunities otherwise unsecured.

We studied the cycles of value investing, going back over 40 years, by measuring the performance of a naïve deep value benchmark, to find us the cheapest quintile of the 1000 largest U.S. listed companies on a price to book value basis, versus the S&P 500 index and of a number of key observations.

One, the cycles of value investing tend to be long, almost 10 years on average, with deep value outperforming for almost seven of these years.

Two, over the last four full value cycles dating back to the late 1960s, deep value has outperformed the S&P 500 by 480 basis points per year.

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