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In the late 1990s the manager would not buy technology stocks he could not value on business fundamentals, so his global funds lagged badly as the Nasdaq soared. Shareholders redeemed until most of the assets under management were gone. When the bubble burst, the funds held up and were vindicated, but only after much of the capital had left.
A value investor who is right about overvaluation is almost always early, because prices can stay irrational for years past the point where the thesis is sound. While the mispricing lasts, clients and employers cannot tell early from wrong, so they judge the manager by recent relative returns. The strategy's edge is therefore bought with a period of looking foolish.
Most professional managers avoid value discipline because underperforming a benchmark or peers for two or three years can cost them their job or their assets, whatever the long-run merit. That career risk pushes managers toward the crowd, since failing conventionally is survivable and succeeding unconventionally may come too late. The scarcity of patient capital, not a scarcity of insight, is what leaves value opportunities available.
The manager aims first at not losing clients' money in absolute terms and only secondarily at beating an index. This means refusing to own an asset merely because it dominates the benchmark, and accepting large tracking error to avoid permanent capital loss. The trade-off is summed up as preferring to lose half one's shareholders rather than half one's shareholders' money.
Buying only at a meaningful discount to a conservative estimate of intrinsic value is treated as an admission that the future is unknowable, not as a precise forecast. The discount absorbs errors in judgment and unforeseen shocks, so the investor wins without needing to be right about macro outcomes. Holding gold and cash as insurance comes from the same acceptance of uncertainty.
Money flows into funds after strong performance and flees after weak performance. As a result, the average fund investor earns well below the fund's own reported return. The outflows during the bubble meant many shareholders left just before the value approach paid off, so a manager's discipline only helps clients who share his patience.