Officially declared dead, but then, here and there, a few sightings. And now -- could it be -- back from the beyond?
No, value funds aren't wearing white jumpsuits or eating peanut-butter-and-banana sandwiches
, but only the King's demise has been more debated. The press and pundits love this analogy. "Is value back from the dead?" yelled the headlines.
And now that it seems the much-maligned investment strategy is stylish again, the follow-up question is, "Who are the 'new' value investors?" (See the latest issue of
Both questions may make for good copy and magazine covers, but I think they miss the point. Value investing never disappeared. Yes, the average growth fund outdid the average value fund last year, and many were hit very hard. But that's not true for most longer time periods. A number of value managers did quite fine, thank you very much, even through 1998's tough times.
Far from being dead, many self-described and longtime value managers are racking up records worth watching. You probably expect me to mention Bill Miller of
Legg Mason Value here. His record -- whether you believe he's a value investor or not -- is simply stunning. But I won't even refer to that because half of you will argue that he's not a true value manager.
Instead, take a look at the Omaha-based
. Last year, during value's troubled times,
Weitz Hickory gained a striking 33%, easily beating the
, and its larger siblings,
Weitz Value and
Partners Value, were just a few points behind. Year to date, the funds are well into the double digits. (Long-term record not too shabby either -- for the past one-, three-, five- and 10-year periods, the average annual return of Value and Partners is either well above or about even with the S&P 500.)
And what about
Oakmark Select? So far this year, a 20% return; for the past year, up 25%. In 1998's go-go growth market, a strong gain, too.
Thornburg Value -- 22 percentage points on the plus side in 1998, up 15 so far this year, with a three-year average annual return of 31%.
First Eagle is another strong performer, up 26% a year in the more recent three-year time period, up 21% last year and 11% this year.
Definitely alive and kicking. And in the value camp.
Value managers often consider more than just price-to-earnings or price-to-book ratios. To these managers, price and profits also matter. When considering a stock, Oakmark Select's manager Bill Nygren tries to estimate the price an acquirer would pay if buying the entire company in cash. "The basic assumption is that the acquisition value number is intrinsic value and that over time the economy pushes stocks to their intrinsic value," says Nygren, who also believes that patience is definitely a virtue.
"In today's world, time frames are three to five weeks, not three to five years. I'm willing to wait. If it takes years for something to work out, it's OK. We don't need catalysts," he says. Lately, he's been buying
. "We argue that it's selling at half of intrinsic value."
Wally Weitz and Rick Lawson of the Weitz Series watch discounted free cash flow. "I go where I find value," says Lawson. In the past, that led him to cable companies and wireless telecom, part of the reason for the fund's recent success. (Of course, you need to keep in mind that these sector choices rarely seem valuable to most everyone else at the purchase time. And it often takes some time for the investments to pay off. In 1994, for example, a heavy weighting in cable pulled the fund well into the negative column and near the bottom of its category.)
Now that value is apparently back in vogue, where are these managers looking? Far from the crowd once more -- and again with a long-term time frame. Lawson likes
American Classic Voyages
, which runs the
steamship line. "This is one that will drive people crazy because nothing much in the business is going to happen in the next three years." He's also putting money into
Data Transmission Network
. "It's an interesting niche business run as it should be."
So there you go. Yes, the world has changed since the fathers of value,
Graham and Dodd
, ruled the investing world. And yes, the tools used today are more sophisticated than you'd find back then. But bottom line is -- as these funds prove -- value never died. And the so-called "new" investors rely on a lot of the basics that go way back.
Now, who wants to argue about Elvis?
P.S. I can already see my mail: "Why didn't you tell us about these performers when value was hurting?" Remember that I introduced
readers to each of these funds in the first half of last year. (Weitz Hickory has since closed to new investors.)
Brenda Buttner's column, Under the Hood, appears Thursdays. At time of publication, Buttner owned shares of Oakmark Select, although holdings can change at any time. Under no circumstances does the information in this column 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. As originally published, this story contained an error. Please see
Corrections and Clarifications.