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By Michael Breen | 05-28-2009 01:16 AM

Weitz: The Right Amount of Caution

Weitz Funds' Wally Weitz discusses balancing the bear market's lessons learned with being too cautious and details opportunities arising from the firm's Liberty Media stake.

Michael Breen: Two general questions about last year, where a balance sheet risk sort of decimated a lot of shares in some firms, if you had any kind of even modest debt. Now things have bounced back. So how do you avoid trying to win the last war? You want to be cautious, but you don't want to--there is a certain level of debt that's perfectly fine in a company, and a certain level of operating leverage, which is good. Everybody sort of wants Procter & Gamble now, but they didn't want it before '08. So how do you kind of balance the lessons learned versus being too cautious?

Wally Weitz: I think that's a really good question, and we do a lot of debate among ourselves about whether we're leaning to the cautious side too much sometimes. I think in companies that really never had too much debt but had questions raised about them because of the capital markets just being shut down--companies like Liberty, the various Liberty entities for example--I think we trust the management. Again, we've been with them 15-18 years. We trust them to understand what risks they're taking, to be very careful not to cross over the line to too much risk, and in cases like that, we're happy to double up on the way down.

With other companies that maybe were a little over-leveraged and depend on the capital markets reopening and capital being relatively cheap within a year or two, I think we decided we better not play, in case.

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