investing

CSC Small Cap Value Fund: Investing Like Buffett and Graham

This fund's manager pays homage to the two investing gurus by buying cheap and cheaper stocks.

Like Warren Buffett, Jeff Bronchick has an eye for bargains and the patience to wait for them to pay off. Bronchick, who runs CSC Small Cap Value Fund (symbol CSCSX), seeks to mimic not only Buffett’s investing style but also that of the late Benjamin Graham, considered the father of modern securities analysis.

Bronchick screens for two types of stocks. So-called Graham stocks are just flat-out cheap. They typically sell for big discounts to book value (assets minus liabilities) and other value measures. “Buffett stocks” are better companies with steady profit and sales growth and relatively favorable share prices. All the companies CSC buys are small or midsize, with up to $5 billion in market value.

After identifying candidates, Bronchick tries to understand the businesses and estimates what he thinks they’re worth. “We determine whether a company looks like a good business at a reasonable price or, in the case of lower-quality businesses, whether a stock is cheap enough to compensate for a company’s shortcomings,” he says.

Finally, Bronchick talks with the targeted companies’ executives, suppliers and competitors before he buys.

That careful process keeps the fund’s turnover rate at a modest 50%, implying that Bronchick holds a stock for an average of two years. In reality, he might hold a stock for up to ten years, adding to his position or trimming it depending on whether the stock’s market price rises or falls. Like Buffett, Bronchick believes that long-term thinking gives his investors a significant edge by keeping taxes and trading costs low. “We’ll own a company for a long time if the business continues to generate cash and management continues to execute,” he says.

Bronchick concentrates on his best ideas, investing in only about 30 stocks at any given time, with the top ten holdings usually representing about half of the portfolio.

So far this year, the fund has trounced its competition, earning 9.5% through May 31, compared with just 2.6% for the small-cap value category, according to Morningstar. The fund owes its strong performance to big bets on White Mountains Insurance Group and Alleghany Corp., both property-casualty insurers, along with financial-services provider Jefferies Group.

The market’s run-up earlier this year turned Bronchick cautious. “We’ve been reducing a number of positions that have done well and have netted out some cash,” he says. That should give the fund the ability to buy aggressively when prices are right.

Follow Jennifer on Twitter or become her fan on Facebook.

ORDER NOW: Buy Kiplinger’s Mutual Funds 2012 special issue for in-depth guidance on the only investments you need.

Most Popular

15 Stocks Warren Buffett Is Buying (And 7 He's Selling)
stocks

15 Stocks Warren Buffett Is Buying (And 7 He's Selling)

Berkshire Hathaway CEO Warren Buffett is a bull once more! The Oracle and his team entered eight new positions and added to others in a big way.
May 17, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The Best Stocks for a Bear Market
stocks to buy

The Best Stocks for a Bear Market

The ideal bear-market stock pick should have a defensive business, a long history of dividend growth and relatively low volatility. Here are 10 stocks…
May 18, 2022

Recommended

An Impact Investing Guide for Private Foundations
investing

An Impact Investing Guide for Private Foundations

Putting assets in service of mission can take many forms. Here are four distinct approaches to consider in your efforts to foster positive change in o…
May 19, 2022
8 Facts You Must Know About Bear Markets
investing

8 Facts You Must Know About Bear Markets

Bear markets can be terrifying, but they're normal, inevitable and – most importantly – don't last forever.
May 13, 2022
3 Investment Ideas for Retirees Right Now
investing

3 Investment Ideas for Retirees Right Now

Wondering what to do with your retirement nest egg? These three portfolio moves may be worth taking a look.
May 12, 2022
The Best Vanguard Funds for 401(k) Retirement Savers
mutual funds

The Best Vanguard Funds for 401(k) Retirement Savers

Vanguard funds account for roughly a third of the 100 most popular 401(k) retirement products. We rank Vanguard's best actively managed funds, includi…
May 10, 2022