When one of his holdings sinks, Weitz often buys more. He trims as the stock rises. One of his top-performing holdings of recent years is Liberty Global (LBTYA), which provides cable service in Europe and Africa. In 2008, the shares slid to 10 as investors worried that the company could not pay its debts. Weitz increased his holdings. Since then the shares have rallied above 70. At the depths of the market, Weitz maintained confidence in the stock because its chairman is cable pioneer John Malone. "Malone has a long record of doing smart things with his cash," Weitz says.
Another big gainer has been Berkshire Hathaway (BRK.A). During the financial crisis, the shares slipped to less than $80,000. Confident that Berkshire CEO Warren Buffett had not lost his touch, Weitz bought shares until the company accounted for 10% of the assets in his fund. Since then Berkshire has climbed to more than $171,000. With Weitz trimming, the stock now accounts for 4% of the fund. Weitz figures that the fair value is around $190,000. "This stock is not cheap, but the company is growing 10% or 15% a year," says Weitz.
James Balanced holds a mix of stocks, bonds and cash. The portfolio can have up to about 80% in stocks. In 2012, the portfolio held 4% in cash, 50% in stocks and the rest in bonds. This year, the cash has risen to 7.5%, while the stock allocation dropped to 45%. The funds cautious approach has delivered strong returns. During the past 10 years, James returned 7.8% annually, outdoing 99% of peers in the conservative allocation category.
The James portfolio managers are concerned that stocks have become overvalued and are likely to produce subpar results in 2014. One troubling indicator is that the total value of the stock market is $19 trillion, which is equal to 119% of the U.S. GDP. According to the World Bank, the value of the U.S. stock market was 82% of GDP in 2008. Portfolio manager David James says that the market is usually expensive when its value exceeds GDP. "When the market gets to this level, it makes sense to be a little cautious," says James.The James managers look for unloved stocks that are rising. "When a stock has good relative strength, there is usually a catalyst that is causing the outlook to improve," David James says. One holding is American Railcar Industries (ARII), a maker of tank cars that transport oil. Because of a shortage of pipeline capacity, more fuel is moving by rail.
At the time of publication, Luxenberg had no positions in stocks or funds mentioned. Follow @StanLuxenberg This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.