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Fund managers’ investing insights

Richard Loth

A recent Morningstar article, “Free Advice from World-Renowned Stock-Pickers” – written by Ryan Batchelor, June 29 – prompted me to look at the most recent quarterly letters to shareholders written by five fund managers whose investment philosophies I’ve followed, both as an investor and an adviser, for several years.My favorites include the following:• John Rogers: http://www.arielmutualfunds.com• Wally Weitz: http://www.weitzfunds.com• Bill Nygren: http://www.oakmark.com• Bill Miller: http://www.leggmason.com• Marty Whitman: http://www.thirdavenuefundsIf you follow the financial press closely, you’ll see these names mentioned frequently as sources of investing wisdom. Batchelor’s Morningstar article reminds us the opinions and perspectives of these experts, such as the aforementioned, are readily available through their shareholder letters, which are posted to their fund Web sites on a quarterly basis. Here’s some sample commentary taken from the first quarter 2005 reports: Ariel Funds’ John Rogers criticizes today’s “pervasive and very negative group think” as being non-productive for investors. His most basic belief is “that the only way to earn above average results is to have the courage to stand out from the crowd.” He reminds us that “independent thinking as a theory is relatively easy to embrace practicing it is another matter altogether.”Wally Weitz (Weitz Equity Funds) thinks that negative investor reaction to the Federal Reserve’s raising interest rates is “all out of proportion to economic reality.” For example, earlier this year when investors followed conventional wisdom and sold banks, thrifts, and mortgage companies, he was buying. His position as a contrarian, value investor is evidenced by his taking advantage of “pervasive fear that made lots of stocks cheap.”Weitz’s portfolio additions in the first months of 2005 tended “to be companies with good underlying business characteristics that had stumbled for some company – or industry – specific reason.” Here again, we’re reminded of the professional’s experience and expertise as Weitz readily admits that “it can be difficult to figure out how significant and how temporary the negative factor is – this is art, not science.”Bill Nygren of Oakmark Funds remembers that five years ago “the financial media was proclaiming that value investing was dead.” Despite significant fund redemptions at that time, Nygren stuck to his long-term value approach, which has put his fund in the top-performing category on a regular basis.The lesson here is that shifting your investment style to fit the times is generally not productive. As an investor, patience is a virtue, and one which Nygren obviously values very highly.Think about this observation by Legg Mason’s Bill Miller: “People always seem to buy today what they should have bought five years earlier: they hated tech stocks in 1994 when prices were low and loved them in 1999 when prices were high, they hated bonds in 1999 when prices were low and love them now when prices are high, they hated oil in 1999 at $12 a barrel but love it now at $55.” He likes “what is out of favor and unloved … we are bullish on the out of favor asset class: U.S. equities.”Lastly, there’s Third Avenue’s Marty Whitman. He shares several pages of remarks he made on value investing at the Schools of Management at Syracuse and Yale Universities. The material is a bit technical for the general reader, but I didn’t want to leave Mr. Whitman out of this discussion. He should be put on your regular reading list.Morningstar’s Batchelor covered some 15 fund-manager letters to shareholders in his article. Among a number of his insights, I’ll leave you with one worth remembering. He refers to this group as his “Chosen Ones” who, like Morningstar, are notable for recommending investing in good companies that trade at a margin of safety to estimates of the companies’ fair value. Pretty good advice, and it comes free-of-charge every quarter!The Investing Wisely column is written by Richard Loth, managing principal of Mentor Investing and an independent registered investment adviser. Loth can be reached at 827-5591 or mentorinvesting@comcast.net.Vail, Colorado


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