High-Conviction Portfolios

If you're looking for an investment that follows the market, pick an index fund or a broadly diversified mutual fund. If you're looking to outperform the market, you need a different approach.

At Weitz Investments, we build high-conviction portfolios. That means the ride may be bumpier than with a broadly diversified fund, but the results have shown to be worth it. See our performance page for results.  Knowing this helps our shareholders cope with market fluctuations.

Instead of building a fund to hit a predefined diversification target, we build our portfolios one company at a time. Because we look to invest in well-run businesses with a potential “margin of safety” (stock prices that we believe are well below the actual value of the company) to limit downside risk, we can make larger investments in those companies. This leads to concentrated portfolios where our top ten holdings often will have the greatest impact on performance.

Choosing stocks

In order for us to have high conviction in a company, it needs to be:
  • A business we can understand and whose future cash flow is reasonably predictable
  • A business with some control over its own destiny, with a buffer against uncontrollable events
  • A business that generates more cash than it needs to operate
  • A business run by honest, intelligent management who treat shareholders as partners in the business, rather than necessary evils
If a business meets these criteria, it’s worth a look. If its stock is available at a deep discount to its estimated value, then we’re really interested.

Courage of our convictions

Markets can be erratic and driven by investor emotion. A meaningful portion of our returns have come from stock holdings that went down before they went up. When a stock that we own drops, we recheck all the facts and see what caused the movement. If we believe the decline is temporary, and the investment is poised for long-term success, we have the courage to buy more. That gives our investors a greater opportunity for value and the potential to see higher returns.

Maintaining a high-conviction fund

We realize that our approach is vastly different than buying a broad cross-section of the market and hoping to come out ahead in the end. Ours is a systematic and logical approach that focuses on what we believe to be the opportunities with the highest potential. Maintaining it is only possible because of our team’s temperament. We are patient enough to wait for the right price before buying. As important, we are disciplined enough to sell when a stock reaches our valuation, when a company’s long-term prospects have changed, or when we find more compelling opportunities.