July 11, 2023 Patience Counts Download PDF Wally Weitz & Brad Hinton × x Wally Weitz & Brad Hinton Close Our firm celebrated its 40th anniversary this May. Several hundred shareholders, including some who have been with us since opening day in 1983, joined us for our annual meeting. Warren Buffett likes to say that companies get the shareholders they deserve, and we are proud to have this group of sensible, patient and loyal investors as clients. In the second quarter, stocks generally continued their recovery from October 2022 lows, but the gains were anything but uniform. Large-cap stocks did better than small, “growth” outperformed “value,” and many companies associated with artificial intelligence, AI, enjoyed super-charged gains. Our businesses performed well, and our portfolios turned in another positive quarter. Bond prices continued to face the headwinds of the Fed's efforts to fight inflation and growing fears that a recession could create credit challenges. Nevertheless, our bond funds continued to do well, and more importantly, provided solid absolute returns. Today's higher rates auger well for future returns as we reinvest interest income and maturing bonds at attractive rates. Market Commentary The stock and bond markets peaked 18 months ago when the Fed made it clear that it would reverse the easy money policy that had prevailed during most of the 13 years since the Great Financial Crisis. Their zero interest rate policy (ZIRP) and quantitative easing (QE) had fueled a long bull market, and a reversal of those policies was not good news for stock or bond prices. We are still working through the transition from market tailwinds to market headwinds. Despite some scary headlines — bank runs, debt ceiling drama, the Russian coup attempt — the long-term outlook for stock portfolio returns usually does not change very much from quarter to quarter. So, rather than dwell on the loud, but less important, news of the day, we will focus on two basic messages for our shareholders: (1) While Fed tightening is not good news for the economy or stock and bond markets, it is necessary, and it will end. The uncertainty of the timing or severity of its impact makes us think of a train going through a tunnel. It is dark outside, we don't know how long the tunnel is, and with no external communication service, we cannot get the answers we would like. But there are rails keeping us on track, and even in the tunnel, our companies are moving toward the desired destination. (2) Business value is still what drives stock prices. Economic, business and political news, along with variations of fear and greed, have always pushed and pulled on stock prices. In recent years, the Covid pandemic created a whole new crop of distortions and distractions. But logic dictates that business value eventually determines stock price. If price is greater than value, a company will sell new shares or convertible bonds to take advantage of cheap financing. They may also make acquisitions with their overvalued shares. The extra supply of shares depresses their price. Similarly, undervalued shares allow for company buybacks and may attract hostile takeovers or tempt management to take the company private. The price can stay disconnected from value for a frustratingly long time, but as long as value remains intact or continues to grow, the investment result should be good. Outlook The Fed policy “tunnel” may extend for several more quarters. The result of their efforts may be a recession. In any event, we will need to be patient and continue to upgrade and reshape our portfolios with the best companies available at reasonable prices. Buying the right companies at the right price and holding patiently has always been a prescription for investing success, even if results do not come on our preferred schedule. As Charlie Munger reminds us, “Investing is not supposed to be easy.” /sitefiles/live/documents/ValueMatters/2Q23 Value Matters.pdf IMPORTANT DISLCOSURES The opinions expressed are those of Weitz Investment Management and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through 07/01/2023, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor's specific objectives, financial needs, risk tolerance and time horizon. Portfolio composition is subject to change at any time. Current and future portfolio holdings are subject to risk. Investors should consider carefully the investment objectives, risks, and charges and expenses of the Funds before investing. This and other important information is contained in the prospectus and summary prospectus, which may be obtained at weitzinvestments.com. Weitz Securities, Inc. is the distributor of the Weitz Funds.