“There’s a very clear message of ‘Understand the business, buy at a discount and be patient…The concept is so sensible.” — Wally Weitz
Wally Weitz: Background & bio
Wally Weitz is the chief investment officer and founder of Weitz Investments. Wally has spent over three decades putting his instinct for opportunity to work for shareholders. Influenced by the value investing model of Benjamin Graham and Warren Buffett, Wally has steadily produced outstanding results on the funds that he’s managed.
Wally discovered Benjamin Graham’s concept of value investing in college. Already an investor (he made his first stock buy at the age of 12), he recognized a common-sense approach when he saw it.
From The Wall Street Journal:
As a 12-year-old, while on a visit to New Jersey from his native New Orleans, he accompanied his mother on a trip to see the family’s stockbroker in Manhattan. By the time the lunch meeting ended, he recalls, his mom’s eyes were glazed over—and he was giddy.
At the train station, he bought a book called “How to Buy Stocks,” by Louis Engel. Soon, he made his first purchase: 10 shares of General Telephone & Electronics Corp., a predecessor of Verizon Communications Inc. He paid 26 3/8 a share. Three years later, he sold them for 42½.
In high school, he joined a stock-picking club and haunted a branch of Merrill Lynch & Co., reading its research reports. By college, Mr. Weitz had discovered “Security Analysis,” the 1934 book by Benjamin Graham and David Dodd laying out the principles of value investing, such as meticulously evaluating a company’s worth and buying when it is selling below that.
“There’s a very clear message of ‘Understand the business, buy at a discount and be patient,’ ” Mr. Weitz says. “The concept is so sensible.”
After a stint at a brokerage house in Omaha, where his wife is from, Mr. Weitz launched his own firm in 1983 backed by a few local investors. Business took off about 10 years later, in part because Weitz Value won a favorable “undiscovered fund” mention from Morningstar.
After earning a BA in economics at Carleton College in 1970, Wally spent three years in New York doing security analysis before coming to Omaha and joining Chiles, Heider & Co. in 1973. There, he spent 10 years as an analyst and portfolio manager until he started Wallace R. Weitz & Company in 1983.
Wally Weitz is a man of regular habits. He leaves for work each morning at about 7:30, on a drive that takes less than 10 minutes despite his ritual stop at Scooter’s Coffee & Yogurt for a latte and some chitchat with employees. For lunch, he often goes to one of two local Indian restaurants.
His days are filled studying balance sheets, income statements and other corporate minutiae. At about 5 p.m., he typically announces to his small staff that he is “changing venues,” meaning a few more hours of work in his home library.
Weitz is what is known on Wall Street as a value investor, one who looks for gems in the bargain bin. Wally Weitz has quietly and over many years carved out his own niche in the world of value investing, and says part of his success has come from applying lessons learned by observing Buffett and his methods. He’s been a shareholder for more than 35 years in Berkshire Hathaway Inc.
Wallace R. Weitz & Company
Based in Omaha, Neb., Wally Weitz, 65, and his team oversee about $6 billion. The company’s flagship $1.1 billion Weitz Partners Value Investor fund has trailed the Standard & Poor’s 500 in recent years, it has good long-term performance. The fund’s 15-year annual return of 7.17% bests the S&P’s by more than 2.5 percentage points and places it in the top 15% of its Morningstar, Inc. peer group.
Weitz’s fund operated as a private partnership from June 1983 to December 2005, when it became a mutual fund. Over its three decades, the fund has returned 14% a year, compared with 11% for the Standard & Poor’s 500 Index, according to Weitz’s website.
Wally Weitz ikes to meet the people who run companies—part of his know-the-business approach—and in autumn 2001 met with Amazon.com Inc. Chief Executive Jeff Bezos. Mr. Weitz says he loved the business concept but worried that it was unpredictable.
Weitz has always looked for companies whose stocks are cheap compared with the cash flow he expects them to generate, a common metric for value investors. Over time, he has come to believe that finding management teams that know how to redeploy any excess cash intelligently is critical to investment success.
Wallace R. Weitz & Company market commentary
- The Primary Risk of Investing: Permanent Loss of Capital
- Value Matters: Shareholder Letter
- Analyst Corner: A Perspective on Range Resources
- Value Fund: Commentary
- Partners Value Fund: Commentary
- Partners III Opportunity Fund: Commentary
- Research Fund: Commentary
- Hickory Fund: Commentary
Wally Weitz: Investment philosophy
Wally Weitz and his team like to think like business owners when they purchase a stock. Weitz believes that that the value of a business is the present value of the cash a business would generate in the future.
Wally Weitz emphasized that his team focus on discretionary cash flow — money that could be taken out of the business, but which the owner might reinvest voluntarily in the company.
Weitz’s team estimates future cash flows by making judgments on the on the sustainability of the company’s business model and its competitive moat.
Wally Weitz uses a 12% discount rate in determining discounted cash flow models. He would prefer a 50% discount, but in recent years, Weitz Asset Management have been paying 60% or 70%. Weitz has noted that over the past few years valuations have increased, and it is possible that his valuation methods have been too conservative.
Wally Weitz has become more comfortable paying for higher multiples for higher quality business, which was notable. He’s mentioned Munger’s principle that “a great business is worth paying up for.”
Like Warren Buffett, Wally Weitz pays attention to company management teams when it comes to investing. He noted a statement from Buffett that it is good to buy a company that any idiot can run because sooner or later, an idiot will be in-charge. According to Wally, “if we’re buying companies that can generate excess cash, it’s terrific if we can trust management to do something smart — accretive to per share business value — with that cash.”
Wally Weitz points out that management makes a huge difference in all kinds of businesses, and it is critical when dealing with leverage…“We like to invest with managers we trust to treat us fairly—to treat us as partners rather than necessary evils,”
Moreover, Wall Weitz’s wants to know if a company’s management has a good, long-term business plan and if it has a sense of executing its plan well. Furthermore, his team wants to trust a management with capital allocation—investing in the business when there are good opportunities to compound value and return capital to shareholders.
Wally Weitz: Articles
- Value Hound Wally Weitz Catches Falling Energy Stocks
- Wally Weitz On Value Investing And Keeping Pace
- Wally Weitz: Finding Value in Growth Stocks
- Old-School Stock Picker Weitz Struggles With Index Craze
- Wally Weitz has carved out his own niche in the world of value
- Weitz Buffett-Malone Bets Best in Value: Riskless Return
- Wallace Weitz Buys Discovery Communications
- Wally Weitz Long Liberty Media: Invest For Kids Chicago
- Wally Weitz’s Q1 Shareholder Commentary Letter
- Wally Weitz Letter To Investors: Why Value Matters
- Wally Weitz: Finding Value in Growth Stocks
- Wally Weitz On Discretionary Cash Flow, Good Management