In May of 2009, Wallace was interviewed by CNBC for his strategy in playing the market recovery, he stated that he bought some more of the same stocks that went down dramatically in 2008:
Wallace Weitz published 2009 annual report. It contains a letter to shareholders of all Weitz Funds and for each fund.
Macro Market View
Weitz and his team is rather cautiously optimistic towards the future. In terms of macro picture, as he said in the letter:
For several quarters, we have suggested that the financial crisis and “Great Recession” caused serious damage to the economy and would take a long time to repair. We believe the worst is over and that we will not experience a repeat of last year’s financial collapse, but we suspect that the 2009 “relief rally” may have raised hopes of further nearterm easy profits.(emphasis his).
The recent financial trauma has spawned many medical analogies—heart attacks, being hit by a bus, and others even more grisly. Returning to that metaphorical well one more time, we are reminded of a person who sustained multiple serious injuries in 2008, survived to great relief and celebration in 2009, but who now faces a long, hard period of rehab and physical therapy. but it may take a while.
GuruFocus tracks many other investment heavy-weighters, many simply disregard the macro market view, considering it is a waste of time. Others would cite the recent rally as the reason to be cautious and would advise people build a rain-day cushion of cash. I found this comment from Weitz rather unique as he look back further and expressed optimism in the future:
We entered the last decade at the peak of a 17-year bull market. Stock valuations were very high. Ten years later, most businesses are larger and more valuable, but stocks as a group are actually lower than they were ten years ago because valuations have shrunk. Historically, every time we have seen this type of “lost decade” for stocks, the subsequent ten year period has produced very strong equity returns.Portfolio is Still at Low Valuation Level
Likewise, in those rare ten-year periods (like 2000-2009) when bonds return more than stocks, equity returns have been very strong in the subsequent ten years. We think it is unfortunate that many investors are abandoning stocks now and chasing bonds this rare golden period for bonds.
So, we feel very optimistic about the next several years. Investors have become more and more short-term oriented over the past few decades, so they may feel tortured by the two-steps-forward, one-step-back pace of the economic.
Weitz and his team estimate the intrinsic value of stocks and based investment decision on Price-to-value ratio (P/V). According to him, at least the stocks in his portfolio are still bargains:
We estimate the value of each business we own and track each stock’s price in relation to that value (price-to-value ratio or P/V). When the rally began last March, the weighted average P/V of our portfolios was very low at well under 50%. Good things seem to happen when our portfolios are that cheap. At year-end, the funds’ P/V ratios were in the 70% range—still a very comfortable level—so we believe our stocks are still reasonably priced.
Comments on Berkshire Hathaway (BRK-A) (BRK-B)
GuruFocus data shows that Weitz’s firm owned 354 shares of class-A and 2.76 million shares of class-B shares of Berkshire Hathaway. The stock takes a lion share of the firm’s long equity portfolio of $1.65 billion. This is what Weitz had to say about the stock:
One important holding that held us back somewhat was Berkshire Hathaway, which gained only 2.7% in 2009. Berkshire had prepared beautifully for the financial crisis and was able to deploy tens of billions of dollars on very attractive terms over a period of a few months. Arguably, the recent bear market was among the most successful and productive periods of Warren Buffett’s 45 years at Berkshire. Yet, Wall Street yawned. We hate it when a stock under-performs because we over-paid for it or because management did something to destroy value. But when a company’s value grows significantly, and investors are slow to respond, we are content to buy more shares and wait patiently.In case you did not notice, both classes of Berkshire stocks climbed about 24% since the beginning of the year, helping the performance of the firm’s funds overall.
Comments on Monsanto Company (MON) and Accenture plc. (ACN)
In the Weitz Value Fund (one of the five stock funds) commentary, Weitz and co-manager Bradle Hinton provided the following comments on Monsanto Company and Accenture Plc.
We purchased two new companies during the quarter, Monsanto Company and Accenture plc. Monsanto is a leading provider of agricultural products to farmers, in particular branded seeds, genomics and herbicides. The company enjoys a strong competitive position and a long structural tailwind, as yield-enhancing technologies continue to gain acceptance around the globe. The stock declined intra-quarter on short-term concerns about the initial effectiveness of new advanced products, which we think are overblown. Accenture is a leading management consulting, technology services and outsourcing company domiciled in Dublin. The company has a terrific business that has generated significant free cash flow throughout a very challenging environment. Accenture has a desirable, long-tenured client list and a pristine balance sheet. When business conditions eventually turn, we think their results may surprise to the upside.
Comment on Liberty Media – Starz (LSTZA)
In another fund, Partners Value Fund, Weitz and co-manager Bradle Hinton provided the following comments on Liberty Media—Starz:
We bought a handful of new companies during the quarter. Liberty Media – Starz is the Fund’s largest new position at 2.5% of net assets. The Starz tracker made its debut as a separately traded stock in November. While the name is new, the core assets have been in the Liberty Media corporate family for years. The Starz cable television channels have attractive recurring revenue streams that generate plenty of free cash flow. The company also has significant net cash on the balance sheet that management can use to grow the business or shrink the equity. With this raw material in the hands of skilled capital allocators, we expect reasonable per share value growth over the next several years.Weitz also owned and commented the stock in a few other funds.
Comment on The Buckle Inc. (BKE) and The Knot (KNOT)
Weitz also manage Hickory Fund by himself, and he commented on two of his new purchases in the fund:
We purchased two new stocks that are squarely in Hickory’s wheelhouse during the quarter. The Buckle is a casual apparel retailer headquartered in Kearney, Nebraska. The company pursues a prudent, moderate store growth strategy funded with free cash flow. The Buckle’s stores generate robust sales metrics with high operating margins, resulting in strong returns on capital. The business is conservatively financed, and management consistently returns excess capital to shareholders via regular and special dividends. The Knot operates the leading web site catering to couples planning weddings. The business generates revenues from ad-supported and subscription-based content, registry services, merchandise and publishing. We think the company has an opportunity to further monetize its high-value, engaged audience and grow the business for years to come.
Comment on Coinstar Inc. (CSTR)
Weitz manages Partners III Opportunity Fund and he commented on his long-term holding Coinstar in this fund:
Coinstar declined 16% during the quarter, paring some of the stock’s healthy gain for the year. We think Coinstar’s stock is much more volatile than the company’s growing underlying business, and we increased our position during the quarter. Intelligent Systems fell 28% after rising 76% in the third quarter. We have owned this micro-cap stock for more than 18 years, and we raised our stake through a rights offering last summer. Between the company’s prosaic ChemFree business (industrial parts washers) and its CoreCard software unit, we think entrepreneurial CEO Leland Strange has enough raw material to one day reward patient shareholders. Finally, the Fund’s short positions detracted modestly from the quarter’s results, which is not unusual in a rising stock market.
Wallace Weitz painted a rather bright picture for the coming years for stocks. Of course, GuruFocus will be standing by to watch his investment activities and insights.
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