Windsor Lesson: Style Matters, but Results Matter More

'Style' is an investing discipline -- not a straightjacket.
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Mutual fund cowboys are out. Sticking to your discipline is in. We've all been taught to beware the dreaded style drift!

But what happens when you are caught in an outgoing tide? Do you just keep paddling against the rushing tide, no matter what?

That's what Charles Freeman, manager of


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Windsor fund, did. In a market that rewarded growth stocks, Freeman has stood his ground, faithfully hewing to his extreme "deep value" strategy that made Windsor famous under legendary fund manager John Neff. Performance has been disastrous, but then Neff had awful years, too. The idea, then and now, was to stick to your knitting until the market recognized the same value you did.

And has Freeman been rewarded for sticking to his discipline?

Hardly. His fund has lost 7.5% over the last two years while the

S&P 500

index has gained 73.2%. Investors have fled in droves, yanking nearly $3 billion from Windsor last year and another $1.2 billion so far this year. Windsor, once Vanguard's flagship, has seen assets fall to $16.5 billion from a high of $23 billion last spring.

Vanguard had to do something. Last week it brought in a second fund manager,

Sanford C. Bernstein & Co.

, to share the management of Windsor with Freeman. Vanguard wouldn't say exactly how it was splitting the fund, but it did say Freeman would continue to oversee "the majority" of the assets.

Better than any recent example, Windsor offers some useful perspective on the popular idea of "style" investing. Our lesson for today: Style counts, but results count more. How many endeavors in this world measure performance, every day, down to two decimal points, the way mutual fund investing does?

Vanguard did the right thing here. In Sanford C. Bernstein, Vanguard is getting another devotee of deep-value investing, but it is also forcing some much-needed new ideas and flexibility down Chuck Freeman's throat. This is, after all, an actively managed fund, not another by-the-numbers Vanguard index fund. Style is just that -- a style, not a straightjacket.

"They are recognizing there can be some nuances within a style," says Don Phillips, president of



Value is in the eye of the beholder. Freeman has seen value in beaten-up companies like

Reynolds Metals

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. On the other hand, others, like Bill Miller, manager of the top-performing

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Legg Mason Value Trust, have adopted a more flexible approach, finding "value" in such pricey stocks as

America Online




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. In this era of growth stocks, Miller was recently named one of Morningstar's three managers of the year.

Jim Lowell, publisher of the

Fidelity Investor

, thinks managers -- particularly value managers in this market -- have to show that kind of flexibility if they are to survive. "Ultimately, you have to be a little more humble and listen to what the market is telling you," says Lowell.

Let's be honest: Managers who stray from their style rarely get nailed unless their performance turns down. Then all hell breaks loose. What was Jeff Vinik doing with all that

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Magellan dough in bonds, anyway?! You think anyone would have cared if interest rates had gone the other way?

Ken Heebner, one of the industry's best, if most volatile, long-term investors, has never had much patience for all the talk about style investing. Heebner, who runs

Capital Growth Management

in Boston, which oversees about $8 billion in assets, thinks style is as much about marketing and packaging to the financial planning community as anything else.

The consultants will tell investors that style is about ensuring diversification. Heebner thinks it's about something else altogether: "It's a way of making people feel comfortable with what is an inherently risky event."

If style is ultimately about truth in labeling, here's the truth: Style has its place, but it can also offer investors a false sense of security because a bad market is going to take down all stocks. In the end, only results count.

Steven Syre & Steve Bailey write for the Boston Globe. This column is exclusive to At time of publication, they held no positions in the stocks or funds discussed in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy stocks or funds.