Weitz Investment Management commentary for the fourth quarrter edned December 31, 2017; titled, “Value Matters.”
Dear Fellow Investor,
2017 was another year of positive returns, and the miracle of compounding continues. We are proud of the long-term performance that we’ve achieved over the nearly 35 years since we started our Firm. Returns for all of our Funds over various intervals can be found on the performance table on our website.
On the other hand, investment returns do not arrive smoothly or on a predictable schedule. We are very accustomed to being “out of step” with the stock market for stretches of time. We are often early both in buying cheap stocks and selling expensive ones. However, we underestimated the persistency of artificially low interest rates as well as investor complacency in the face of high valuations and both economic and geopolitical risks. As a result, our overly cautious portfolio positioning has had a negative impact on our relative returns.
The reason we invest the way we do is that we think it gives us the highest probability of success over long investment periods. We are investing client capital with an eye to funding long-term goals such as college education and improving the quality of life in retirement. We are not focused on short-term performance contests (though we are not opposed to outsized annual gains from time to time).
Looking ahead to 2018, we would not presume to predict what the stock market will do, but we feel very good about the stocks we own. Several of our favorites, especially a handful of cable TV and broadband providers, reported earnings and business value growth that was not fully reflected in their stock prices. These may well be able to provide above-average returns regardless of general market action. Others that performed well in 2017 and are arguably less cheap, such as Visa, MasterCard, Berkshire Hathaway, Google and Texas Instruments, are expected to continue to grow business value at a rate that should auger well for future returns.
We feel good about our investment process and our ability to implement it because we think it is based on timeless principles. We believe that assets with logically measurable values become mispriced—both on the high and low sides—because investors’ emotions lead them to, on occasion, buy high and sell low. Our job, as Warren Buffett has said, is to “buy when others are fearful and to sell when they are being greedy.” A portion of our recent interview published by The Motley Fool is reproduced on the following pages. Hopefully, it will provide a good reminder of how we approach our version of value investing.
Detailed information on each of our Funds is available on our website and we encourage shareholders to read our Quarterly Commentary. If you have any questions about our Funds or investment process, our (live human) client service colleagues are available to answer or forward them along to our analysts and portfolio managers.
Thank you again for trusting us to manage your investments.