NEW YORK (TheStreet) -- Weitz Partners Value (WPVLX) - Get Report has a quirky track record. When the S&P 500 Index lost 9.1% of its value in 2000, the Weitz mutual fund gained 21%. In 2007, the S&P 500 climbed 5.5%, and Weitz dropped 8.5%.
The fund follows an unusual path because of its distinctive strategy. Portfolio manager Wally Weitz often focuses on only a few industries and a limited number of stocks. When the bets prove correct, the fund soars. But if one or two stocks disappoint, Weitz can record a disappointing year.
Over long periods, the strategy has produced striking returns. During the past 15 years, the Weitz fund has returned 9.5% annually, outdoing the S&P 500 by 3 percentage points annually and surpassing 98% of its large-value peers.
The success can be partly attributed to an accident of geography. In 1973, Weitz moved to Omaha and went into the money-management business. He soon learned about the ideas of
, who was located in the same city. At the time, Buffett -- now the world's second-richest person after Bill Gates -- preached the value of newspaper, TV and other media stocks. Such companies dominated niches and generated rich profits.
"I paid a lot of attention to what Buffett said, and I looked for companies that gushed free cash," says Weitz.
as well as stocks of cable companies, such as
. The media stocks worked brilliantly until recent years when advertising revenues shriveled. Still, Weitz remains loyal to the sector. He currently has 26% of his assets in media, nine times the sector's weighting in the S&P 500.
A diehard value investor, Weitz favors stocks that sell at big discounts to fair values. He looks for consistent companies that generate more cash than they need to run the businesses. Management must have a track record for investing cash shrewdly, but the companies need not be growth stars.
"I prefer companies that can grow at some rate, but it is probably better if the growth is not too fast because that attracts attention from competitors," he says.
When he spots an effective management, Weitz often sticks with it for years. One of his favorite managers is John Malone, the cable-TV billionaire. Over the years, Weitz has scored big gains with Malone vehicles, as the manager boosted cash flows and expanded businesses.
Weitz currently owns
Liberty Media Interactive
, operator of QVC, the home-shopping channel headed by Malone. Weitz says the company has mastered the art of selling apparel and jewelry to a loyal audience.
"The economics of the business are fabulous because there are no bricks and mortar to pay for," says Weitz.
The stock is currently around $12, but Weitz figures that it is worth double that. During the crisis of 2008, the shares cratered, and Weitz bought some shares for less than $3.
Another big holding is Comcast. After spending heavily to build its cable system, the company can now profit from its investments.
"The company has become almost as steady as a utility," says Weitz. "People pay their cable bills even when they are not paying their mortgages."
Weitz likes companies that use their excess cash to buy back stock. That increases the amount of earnings that can be attributed to each of the remaining shares. One stock he favors is
, the semiconductor maker. In recent years, the company has bought back a third of its shares. Weitz says management has been shrewd about its stock purchases, buying when the shares have been out of favor. In coming years, earnings per share should climb. But the stock sells for only 10 times next year's earnings, below the average figure for the S&P 500.
Another holding with a big repurchase program is
. While the shares trade around $24, Weitz says the fair value is $37. He says it could take several years for the stock to move. But with the company generating boatloads of cash, the shares should climb eventually.
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Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.