Wally Weitz Describes His Value Approach to Current Market Volatility

Wally Weitz, founder and CIO of Weitz Investments, describes his firm’s value approach to investing in a recent co-authored commentary with the firm’s director of research, Brad Hinton. After describing the impact of Fed policy to create relatively high stock valuations, they note that the current volatility is a result of global forces that are not unexpected and that it presents opportunities for value investors. “We have been lamenting the absence of volatility for years,” they say, “and now we have some.” Pictured is Wally Weitz and Brad Hinton of Weitz Investments. BA-AQ049_mfqfun_NS_20090710163712

“Investing,” Weitz and Hinton remind us, “is as much art as it is science (maybe more).” The managers “focus on the business value of individual companies,” seeking to “pay a price equal to 50-70% of our estimate of value.”  Because “emotions drive investors to overreact to imperfect information,” among other reasons, “a stock’s price can move far below (or above) that company’s business value.” They continue: “Business valuation is (roughly) measurable and it acts as a powerful ‘gravitational force’ on a company’s stock price,” although “the timing of the reconciliation of price and value is always a mystery.” Accordingly, while they see great opportunity in volatile markets, “our pace of buying will depend on valuations . . . not on any attempt at ‘market timing.” Most likely, Weitz and Hinton conclude, they “will buy opportunistically. The beauty of owning companies with strong competitive and financial positions, bought at reasonable prices, is that we know we have a high probability of financial success.”