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Wallace Weitz: Perception of well-being

July 18, 2006
insider

The second quarter of 2006 was a good one for our Funds. It was also a period of considerable financial market volatility. In this increasingly risky environment, we have focused on companies that can (1) survive financial market upheaval and (2) take advantage of distress sales of assets. Happily, in this increasingly speculative market, large growth companies with very strong balance sheets (e.g. Wal-Mart, AIG) have been out of favor and available at prices that value investors are willing to pay. Thus, as we have upgraded the overall financial strength of our portfolios, we think we have also increased the upside potential for our Funds.

As for companies with the capacity to take advantage of capital markets weakness, we start with Berkshire Hathaway. Berkshire holds over $42,000 per share in cash and bonds that is available for investment and Warren Buffett is equally at home buying individual securities and whole businesses. Washington Post, Redwood Trust, Liberty Capital, IAC/InterActive, and others have excess cash and borrowing power and have stated publicly that they are interested in acquiring securities and/or businesses if opportunities arise. Many of our other companies also have significant stock buyback programs in place and could be expected to be very aggressive purchasers of their own stock in a period of general market weakness.

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