Ariel Capital Management, LLC – John W. Rogers, Jr.
We invest in quality companies in industries where we have proven expertise. And we only buy when these quality businesses are selling at excellent values. As Warren Buffett disciples, we challenge conventional wisdom which allows us to stand out from the investing crowd. As disciplined investors, we seek to invest in companies when they are trading at a low valuation relative to potential earnings (p/e less than 13x forward cash earnings) and/or a low valuation relative to intrinsic worth (40% discount to private market value—PMV). As value investors, we make opportunistic purchases when great companies are temporarily out of favor.
Fairholme Fund – Bruce Berkowitz
The Fairholme Fund's preferred investment strategy is to become a "silent partner" with exceptional owner-managers who have a "paper trail" of financial success and a demonstrated history of honesty and integrity. When we find a company that generates free cash with a low stock price, we expect investment performance to be exceptional.
Some investments that do not fit the mold of great company/great managers may still prove compelling investments. Mediocre businesses trading at a huge discount to intrinsic value may be worthwhile investments with the presence of a catalyst - an event or characteristic that makes it likely that the gap between market price and value will narrow in a reasonable period of time. Under these circumstances, we are willing to overlook less than sterling management or lower than average profit margin. These types of opportunities often result from overwhelmingly negative publicity or unique one-time problems.
First Pacific Advisors – Robert Rodriguez
This price-driven equity style attempts to exploit market inefficiencies among stocks of smaller companies. Intense research is required to build the high level of knowledge and confidence necessary to realistically evaluate unpopular situations. Great attention is paid to the minimization of potential risk. The disciplined selection process is designed to minimize business risk by applying specific fundamental criteria: strong balance sheets, free cashflow, an understandable and successful business strategy under capable management, and unique business characteristics, which may include proprietary technology or a dominant market position. Qualifying companies have a history of generating high return on equity or demonstrate the potential to do so. FPA's value bias focuses on companies with long-term records; over 70% of holdings have at least 10-year histories.
Legg Mason – Bill Miller
Value companies, not stocks
The Fund follows a value discipline of investing by purchasing primarily large-capitalization stocks at large discounts to the manager’s assessment of their intrinsic value.
Traditional and untraditional valuation measures
Our analytical approach is not based on traditional, accounting-based valuation measures. We are focused on cash earnings—namely, the present value of future cash flows of a company. Shareholder value is the result of cash, not accounting, earnings. In this way, we believe we differ from most value managers. Traditional valuation measures miss many mispriced stocks because those measures do not focus on the value of a business.
Note: Effective April 30, 2012, Bill Miller will be stepping down from the Legg Mason Capital Management Value Trust and Value Equity strategy as well as Chief Investment Officer for LMCM. He will continue to manage the Legg Mason Capital Management Opportunity Trust and remain Chairman of LMCM.
Muhlenkamp Fund – Ron Muhlenkamp
Invest in the common stock of highly profitable companies, as measured by Return on Equity (ROE), that sell at value prices, as measured by Price to Earnings ratios (P/E).
Oakmark Select – Bill Nygren
We are value investors, which means that we invest in companies that we believe trade at a substantial discount to what we consider to be their true business value. We are patient investors, not market timers. We believe that, over time, the price of a stock will rise to reflect the value of the underlying company. Every stock purchase is viewed as if we were buying a piece of a business, not just a stock certificate. We believe that this approach to investing allows for significant investment returns while reducing risk.
While some value investors may search only for stocks with low price-earnings ratios irrespective of the companies' underlying worth, Oakmark takes a more in-depth approach. In evaluating potential investments, we focus on the following characteristics:
- A company's stock price and whether it is a significant discount to our estimate of underlying business value
- Free cash flows & intelligent investment of excess cash
- High level of manager ownership
Tilson Funds – Whitney Tilson
The Tilson Mutual Funds follow a long-term-oriented, value-based investment strategy, seeking to identify stocks that are trading at a substantial discount to their intrinsic value. The Tilson Focus Fund seeks maximum capital appreciation, while the Tilson Dividend Fund, while also seeking capital appreciation, seeks to generate current income from dividends and selling covered calls.
Weitz Funds – Wallace R. Weitz
We are patient, long-term investors. When we analyze potential equity investments, we think about the business behind the stock and try to buy shares at a large discount to the company’s underlying business value. Ideally, the business value rises over time and the stock price follows. This often allows us to hold the stock for many years, minimizing transaction costs, taxes, and the need for new investment ideas.
We try to stay within our "circle of competence." "Knowing what you don’t know" is important in all aspects of life, but it is crucial in investing. We think our odds of investment success are much higher when we invest in securities of companies we understand and, ideally, where we may have an edge over other investors. As a result, our portfolios are not diversified among all the various sectors of the economy and thus may often be out of step with the general stock market.
Risk—we worry about permanent loss of capital—not price volatility. We believe in concentrating our portfolio in the most attractive investment ideas and this can cause short-term price volatility of our portfolios.