Quick Take: A lot of investors worry when stocks gyrate violently, but not George Schwartz. "I want to see volatility," says the manager of the $67-million Schwartz Value Fund (RCMFX). "It creates an opportunity to buy a stock for less than it's worth, or to sell it for more than it's worth."
Schwartz tries to buy shares at bargain-basement prices. He has no objection to investing in unloved companies if he's convinced the problems that have caused them to fall out of favor on Wall Street are only transient.
In recent years, his fund has edged out its peers and the Standard & Poor's 500 index, or stayed within hailing distance of them. Schwartz Value was up 7.7% through August this year, versus 2.4% for the average small-cap value fund, and 0.4% for the index. The Schwartz fund returned 11.8% on average for the five years ended last month. Similar funds advanced 12.8%, and the S&P 500 dropped 2.1% during that period.
The fund began operations under Schwartz in 1984, but it became available for sale in all 50 states only in 2001. Currently, the fund is more expensive to own than its peers, charging 1.89%, versus 1.53% for the average small-cap value fund.
The Full Interview:
When the rest of the market has turned its back on a company, George Schwartz is likely to approach it.
"If you buy a stock when it's popular, by definition you're going to be paying too high a price," says the money manager, who oversees the Schwartz Value Fund. "You can only get a bargain if you do the opposite of what most people are doing."
Schwartz is willing to bet on troubled businesses if he thinks their affliction is only temporary.
In picking the 70-80 stocks that go into the portfolio, Schwartz looks for those selling at a sizable discount to what he judges a company to be worth. He wants shares priced low relative to the company's earnings, cash flow or book value. Solid balance sheets, low debt, and strong cash flow are on his check list, too.
Although he's a value-oriented investor, Schwartz doesn't ignore profits. "The more the better," he replies when asked what he looks for in terms of earnings growth.
Stocks that aren't widely followed by Wall Street are prized by Schwartz because chances are they'll be selling for less than what they should be, he says.
