(PUB) Investing 2015

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Every Picture Tells an Investment Story Continued From Cover

manager, so you won’t see a lot of trades in a quarter. In the third quarter of this year, Nygren made just one purchase, adding to the fund’s position in General Electric GE . It illustrates how Nygren’s view of value is more like Warren Buffett’s than John Neff’s, who ran the deep-value Vanguard Windsor VWNDX . Buffett says you pay a fair price for a great business that has defensible moats and can compound your investment over time. GE has a Morningstar Economic Moat Rating of wide because its installed base of industrial equipment is a huge challenge to competi- tors. In the third quarter, the stock dipped to its lowest point in a couple of years, illustrating that Nygren does still care about price. Meantime, Nygren trimmed a big winner and a big loser. That dot to the far upper right is red-hot Amazon.com AMZN , which has doubled for the year to date as its growth continues at a remarkable pace, enabled by its low-cost operations. It also has a Morningstar Economic Moat Rating of wide. On the far left, just touching the mid-/large-cap line is Apache APA from the hard-hit oil sector. Nygren sold much of his stake in the company as falling oil prices hit the shares of this no-moat company. A deep-value investor might buy more on a sell-off, but Nygren may have decided that would be throwing good money after bad.

John Rogers is also a fan of Buffett, but, as you can see, he fishes in a different pond from Nygren. Ariel’s buys were mostly on the lower-left side, while it consistently sold stocks whose valuations moved into growth territory. Clearly, valuation matters more at Ariel. In fact, the fund has a huge number of holdings in narrow-moat stocks, indicating Rogers will sacri- fice some barriers to entry in exchange for a break on price. Those three sales toward the upper right are CBRE Group CBG , Royal Caribbean Cruises RCL , and Mohawk Industries MHK . Each was a slight trim in the position size , indicating that Rogers is gradually redeploying money from pricier to cheaper names. Those two blue dots on the lower left are Kennametal KMT and Bristow BRS . Both have been hammered this year and no doubt appear cheap to Rogers. Bristow is an energy name--like I said, some value managers are buying more energy.

Vanguard Windsor II VWNFX: Cast a wide net.

Vanguard Windsor II VWNFX

Valuation Value

Blend

Growth

1 Buys 1 Sells

Market Capitalization Small Mid Large

Ariel Fund ARGFX: Sell the price risk.

Ariel Fund ARGFX

Valuation Value

Blend

Growth

1 Buys 1 Sells

Lead manager Jim Barrow once said, “I hate all the companies we own.” I love the honesty of this deep-value manager. His idea is to buy stocks so cheap that even modest improvement will pay off handsomely. Yet, this picture shows buys and sells widely dispersed across the style box. The explanation is that Barrow isn’t the only cook on this fund. His firm runs 60% of the assets, while Vanguard farms out the rest to four more subadvisors. Each one uses a different value strategy, and the fund now owns 260 holdings.

Market Capitalization Small Mid Large