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Tough Times for Classic Value Investors

February 19, 2013

by Laurence B. Siegel

Value wins over long periods

Figure 1 shows the performance of a selection of classic value managers from January 1997 to October 2012. I selected these managers to represent a broad cross-section of value-oriented approaches in the tradition of Graham and Dodd, but this is by no means a complete sample. The S&P 500 is shown using a thick, bright green line, and the Russell 1000 Value benchmark is a thick black line. I chose such a long period because I want to capture a full value-growth cycle and because of my general attitude that a longer view is a clearer one.

Figure 1

Cumulative Total Returns of Value Managers and Benchmarks, January 1997-November 2012

Legend: R1000V – Russell 1000 Value index; SGENX – SoGen First Eagle Global, class A; TWEBX – Tweedy, Browne Value; FAIRX – Fairholme; LLPFX – Longleaf Partners; WGRNX – Wintergreen Investors; LUK, Leucadia National Corporation; BRK.A – Berkshire Hathaway class A; WVALX – Weitz Value Fund; SP500 – Standard and Poor’s 500-Stock Index.

Since 1997, the market has been in a weak uptrend, despite the two crashes. The S&P 500 earned most of its return for the period between 1997 and 1999, but the value benchmark and value managers had their best years from 2003 to 2006. SoGen’s First Eagle Global fund had the best return, although the volatile Leucadia National was in the top spot for most of the period. (Leucadia National [LUK] and Berkshire Hathaway A [BRK.A] operate companies that function much like value-oriented investment management firms.) The other managers generally did well over this long period.

Figure 2 shows performance relative to the S&P 500, which is indicated by the value 1 on the y-axis. From the performance of the Russell 1000 Value benchmark, we see that growth beat value during the run-up of the Internet bubble from 1997 to 1999, value beat growth from 2000 to 2007 and growth has beaten value since. The managers in our study generally did well. Tweedy Browne trailed the Russell value benchmark slightly, and the others beat the value benchmark, in some cases handsomely. But since the crash of 2008-2009, and especially during 2011 and 2012, several of the value managers underperformed.

Figure 2

Cumulative Total Returns of Value Managers and Benchmark in Excess of S&P 500

January 1997-November 2012