By Mark Jewell
AP Personal Finance Writer
BOSTON (AP) -- Wally Weitz has an unshakable belief in Warren Buffett.
Who's Wally Weitz, you ask? Well, he's the other investor in Omaha who you may want to know about.
One of the mutual funds Weitz helps run has averaged an annual return of 12 percent for more than a quarter century.
A key reason is Weitz' devotion to Buffett. Since its founding in 1983, Wallace R. Weitz & Co. has continuously owned stock in Buffett's Berkshire Hathaway Inc. It's a rare show of loyalty in an era when some would argue investing for the long haul has been supplanted by trading for short-term gains.
"I look out our east window every morning, and bow to (Buffett's office at) Kiewit Plaza to keep the world turning the right way," Weitz says.
He was joking. But such ritualistic behavior might not seem odd for a 61-year-old who wears a plaid shirt almost every day.
Unusual habits aside, Weitz is gaining wide acceptance these days. Morningstar recently listed Weitz among a handful of early favorites for its manager of the year award in the domestic fund category.
The reason: Weitz Partners Value (WPVLX) has returned nearly 15 percent this year, tops among large-cap value funds. The $604 million fund is far ahead of the nearly 3 percent gain for the Standard & Poor's 500. The past four years, Weitz has co-managed the fund with Bradley Hinton.
Weitz Partners Value counts Berkshire Hathaway's Class B stock as its top holding, and the shares have risen 25 percent this year. Another holding that's fared well is Coinstar Inc., the company that places coin-counting and other machines in supermarkets and convenience stores. That stock is up 52 percent. And European cable network owner Liberty Global Inc. is up 40 percent.
Weitz doesn't focus on sectors but evaluates stocks individually, with a strong emphasis on price.
Below are excerpts from a recent interview:
Q: Where you do see the stock market and economy heading?
A: The economy is still moving forward, but slowly and unevenly -- enough that people still get scared from time to time. People were happy in the first quarter, scared in the second quarter, happy in July, and worried in August, and so on.
When our firm talks to companies one-by-one, almost all those that we've invested in are, at worst, finding ways to move forward with cost-cutting. Buffett has said he owns 70 companies, and almost all of them are seeing upticks in their business, and he doesn't think there will be a double-dip recession.
We may have another year or two of choppy sideways trading in the stock market, but eventually it will come out on the upside. If we have a three- to five year horizon on most of the stocks we own, that's close enough for us.
Q: What mistakes did you make in 2008, when the funds suffered losses of around 40 percent, slightly worse than the S&P 500?
A: A lot of the contrarian investing that had worked well for us in the past didn't work. It used to be that when people got pessimistic and worried about credit risk and banks and mortgages, you could take a contrary position and just wait it out. Eventually the Federal Reserve would lower interest rates and everything would be fine, and we would make a fortune. It became a real bread-and-butter approach for us over the decades.
But in 2008 I really underestimated how bad it would be. We kept a few stocks like Countrywide and Fannie Mae and Freddie Mac that we thought benefitted from economies of scale, and that had the special sources of financing. We thought they would benefit from the troubles of other financial institutions.
But that first wave of credit losses turned into a negative loop, where the foreclosures and the forced sales of the others companies' mortgages hurt the bank stocks that we thought were going to survive.
We got out of those stocks in late 2007 and early 2008, but not before it messed up our performance quite a bit.
Q: Do you expect to always hold some Berkshire Hathaway stock, since you've continuously owned it for so long?
A: I may have developed a sentimental attachment to the stock, so it may never get to zero in some of our funds.
In early 2009, it was up to 12 to 13 percent, probably our largest position ever. It really felt like a good anchor when the market collapsed.
All things being equal, we could give Berkshire an edge over other companies we don't know as well, and whose management we don't trust as much. But it's not magic, and we try to be disciplined about the stock's price relative to its value.
Q: One of your holdings, Cabela's Inc., a seller of outdoors and sporting goods through catalogs and online sales, is up 32 percent this year. Why do you like the stock?
A: Gun sales have been very strong in the last year. We don't want to think too hard about what that means. But Cabela's is finding a way to cope with the recession.
Q: These days, how should investors think about stocks in the long-term?
A: We're in the business of finding underpriced assets, and buying them and then having them return to normal pricing. Stock prices are way more volatile than the actual value of the businesses behind the stocks. Another way of looking at this: It's arbitraging emotions. If things are underpriced because people are pessimistic, there's an opportunity there. You can buy low, but you just have to have the patience to wait for the investment to mature, and I hope it doesn't take 12 years.
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Questions? E-mail investorinsigh@ap.org.
Published: Mon, Oct 4, 2010
