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suggestions in the literature that the performance of value investors during these “obvious market frenzies” should be studied,13 no one has seriously done so.2

So I decided to look for some. The conclusions are stunning. Yes, there really are rational investors out there. And no, they did not suffer the losses sustained by the rest of us. On the contrary, they beat the market averages by huge amounts. And they achieved those results by holding very undiversified portfolios, buying shares of a small number of companies. And whatever stocks they did buy, they were likely to hold for years to come.

The findings have big implications for every investor, armchair market savant, and day trader. And for academics, the results are simply huge.

A Simple Survey

To bring a group of rational/value investors out of the closet, I asked Bob Goldfarb, the highly regarded chief executive of the Sequoia Fund, to furnish the names of ten “true-blue” value funds, those which, as they say on the Street, don’t just talk the talk but walk the walk. (Had I prepared the list, I would have included Sequoia, but Goldfarb’s ten is Goldfarb’s ten.) They are all mutual funds, except for Source Capital, a closed-end fund which invests much like a mutual fund. The funds are as follows:14

Clipper Fund

Mutual Beacon

FPA Capital

Oak Value

First Eagle Global

Oakmark Select

1. Seven years ago, Prof. Lynn Stout tried to coax her academic colleagues to take a look at the poster-boy value investor, Warren E. Buffett, but none of them have. Stout, How Efficient Markets Undervalue Stocks: CAPM and ECMH Under Conditions of Uncertainty and Disagreement, 19 Cardozo L. Rev. (1997) 475, 491. To get away from the usual assumption that he is unique, I turned my attention elsewhere.


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