Rich Pzena, manager since 6/96
S&P Rank: 5 Stars
Hard Bargaining
Aug. 21, 2003 — Deep value investor Rich Pzena believes it’s difficult to find steep bargains in any market climate. “You can’t buy the fastest businesses with the best growth rates because they don’t sell at the best prices,” Pzena says.
Despite these pitfalls, Pzena has achieved enviable results running J Hancock Classic Value/A (PZFVX). The fund is the second best-performing mid-cap value fund for the three years through last month, gaining 16.9%, on average, versus a 6.7% rise for its peers. The fund is also holding up well of late with a 17.2% gain this year through July, versus 15.8% for its peers.
Pzena says he invests with “a fairly heavy dose of realism,” which includes several steps. First, the manager looks for companies with some difficulties. Next, he asks three questions: Are the difficulties temporary? Does the company have a good business? Will the company’s earnings improve significantly down the road?
Fundamental research is key to Pzena’s strategy, but he also uses other criteria. “Research is only half the battle,” he says, because investing is “an emotional business.” Pzena ranks each potential holding from the cheapest to the most expensive based on the ratio of its current stock price to its projected earnings. He only buys stocks in the cheapest quintile of this ranking.