Morningstar Conference: Wisdom From Weitz

He's shedding cable and buying utilities.
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CHICAGO -- It was hard enough last year for the growth guys to beat the market. So when a longtime value devotee takes on the

S&P 500

and wins, he's worth listening to. And when he does that not just in 1998, but in five of the last seven years in a large-growth-led market, it's time to take notes.

No surprise then that people scribbled whenever they could corner Wally Weitz this morning at the

Morningstar Investment Conference

. The soft-spoken bespectacled Nebraskan might not be a likely candidate for celebrity status, but his long-term record usually draws a crowd.

(WPVLX) - Get Report

Weitz Partners Value boasts a three-year average annualized return of 30%, and its sibling

(WVALX) - Get Report

Weitz Value isn't far behind, delivering 29% a year on average.

Investors hoping to hear a secret formula to that success, however, walked away disappointed. "It's common sense," Weitz says simply. "Thinking about a business as a business, not a stock."

But as many value adherents can attest, many good businesses have not been good stocks. Still, some of the stocks in Weitz's portfolios kept pace with many of the market's rapid risers. Both his funds overweighted cable long before it was popular. Weitz bought them during the sector's tough times -- in 1991, when they were cheap, and again in 1994. "Cable was misunderstood. It was a good idea with good returns that was misperceived." When cable companies took off in the last few years, Weitz's funds went right along with them.

What about now, as some of the industry's biggest deals ever put cable companies again in the spotlight? Too rich for Weitz's blood. "We have lost half a dozen companies. We have four left." And he expects that his portfolio will one day have none. "They're priced where they have to have everything go right."

Weitz's concern about overvaluation extends to much of the market. Despite all the talk of the return of value investing, he doesn't see much value out there. Investors, he says, are confusing relative value with absolute value. "To be relatively valuable, a stock is cheap because it's half the multiple of XYZ. But that still might not be cheap. People don't think about what they're buying."

What is he buying? "I hate to admit it, but I actually bought a few utility stocks," he says with a smile. In particular,

Citizens Utilities

(CZN)

. "They own all different sorts of utilities, but are going to split up and focus on telephones. The stock is worth 15 or more in pieces." It closed Monday at 10 3/8.

As for the big cash stake he carried through much of the bull market -- down from more than 40% last year to a still-hefty 33% -- Weitz won't predict that he'll cut it anytime soon, either in his $1 billion Weitz Value or in the $264 million Weitz Partners Value. "There are no targets. Cash is just what's leftover after you do the best you can."

At time of publication, Brenda Buttner had no positions in the funds mentioned in this column, although holdings can change at any time. Under no circumstances does the information here represent a recommendation to buy or sell stocks or funds. While she cannot provide investment advice or recommendations, Buttner appreciates your feedback at

TSCBrenda@aol.com.