When it comes to long-term wealth creation, few investment philosophies are as revered as value investing. Pioneered by legends like Benjamin Graham and popularized by Warren Buffett, Sir John Templeton, Li Lu, and Duan Yongping, value investing isn’t just a strategy—it’s a mindset. These investors didn’t just grow rich; they lived with integrity, shared wisdom generously, and built legacies that extend beyond finance into life, leadership, and philosophy.
But here’s the catch: most of us aren’t buying individual stocks. We’re buying mutual funds or exchange-traded funds (ETFs). While value investors talk about great businesses, strong management, and fair prices, how can we, as fund investors, apply these principles? And more importantly—can this approach actually help us earn higher returns?
Let’s break it down.
What Is Value Investing?
Many claim to be value investors, but the term is often misused. At its core, true value investing means buying ownership in a business—not trading ticker symbols. As Buffett famously said: “If you can’t hold a stock for ten years, don’t hold it for ten minutes.”
In this mindset, buying a stock is like investing in your friend’s business. You wouldn’t expect daily liquidity or short-term profits. Instead, you’d focus on fundamentals: Is the business durable? Does it have a competitive advantage? Is the management trustworthy? Will it generate consistent cash flow?
Charlie Munger once illustrated this perfectly:
“Imagine inheriting several companies. You’d study each one deeply—its economics, risks, leadership—because your livelihood depends on them.”
This long-term, ownership-oriented thinking separates real investing from speculation.
How Can We Apply Value Investing to Funds?
If value investing means owning great businesses for the long haul, how does that translate to fund investing?
Simple: invest in funds managed by true value investors.
Instead of analyzing hundreds of stocks yourself, you outsource that work to a skilled fund manager who follows value principles. Your job becomes finding the right manager—one with discipline, consistency, and a proven process—and holding their fund for years.
👉 Discover how to identify fund managers with genuine long-term strategies
This flips the script. Individual investors often obsess over market timing and price fluctuations. But fund investors practicing value investing focus on manager quality, not daily NAV changes. They ask:
- Does the manager think like an owner?
- Do they avoid fads and stick to their circle of competence?
- Have they maintained performance through bull and bear markets?
By aligning with such managers, you practice value investing indirectly—but effectively.
Will This Approach Make You More Money?
Here’s the uncomfortable truth: not necessarily.
While the theory sounds solid, real-world results are mixed. In fact, my own 4.5-year experiment suggests that simply chasing “great value-focused fund managers” may underperform the market.
The "Good Manager Portfolio" Experiment
Back in November 2020, I launched a test portfolio called the "Good Manager Portfolio". The idea was straightforward:
- Select funds run by managers widely recognized for value investing.
- Allocate based on conviction and alignment with value principles.
- Ignore market cycles and style rotations.
- Hold long-term and measure results.
After multiple rebalances and deep research into each pick—including names like Dong Chengfei, Qiu Dongrong, and others—the portfolio has delivered a -23.22% total return as of June 18 (vs. -13.29% for the Wind Equity Fund Index). That’s an annualized underperformance of about 2%—with higher volatility.
Now, context matters: since 2021, quality/growth/value-oriented styles have broadly underperformed amid tech-led rallies. The so-called "Mao Index" (tracking elite Chinese firms) has lagged significantly behind broader indices.
Still, expectations were higher. If even a carefully curated portfolio of “best-in-class” value managers struggles, what does that say about the feasibility of this approach?
Why Is It So Hard to Profit from Value-Based Fund Investing?
Two systemic challenges make this strategy harder than it appears:
1. Lack of Transparent, Long-Term Data
Unlike public companies with decades of financials, fund managers offer very little transparent data. Many don’t disclose full career histories. Some don’t even list their age or educational background publicly. How can you assess someone’s judgment when you can’t see their track record beyond five years?
And here’s a stark fact: 73% of equity fund managers have less than six years of experience managing funds. With such short windows, how confident can any investor be?
👉 Learn how deeper insights can improve your fund selection process
2. Manager Instability and Scale Issues
Even when you find a great manager:
- They might leave the fund unexpectedly (e.g., Dong Chengfei, Cao Mingchang, Bao Wuke).
- Their fund grows too large, diluting returns due to liquidity constraints.
- They get promoted into administrative roles and spend less time on investing.
Good companies last decades. Good managers? Often not.
A hypothetical backtest shows this clearly:
Imagine identifying top-performing managers after seven years of success. On average, future annual excess return over the benchmark drops to just 0.008%. Wait ten years? The edge vanishes completely.
Why? Because by then, their success is already priced in—and often followed by structural headwinds.
So, What Should Fund Investors Do?
Value investing teaches patience, discipline, and rationality—qualities every investor should cultivate. But applying it rigidly to fund selection may not yield better returns due to data gaps and human volatility.
Instead, consider blending value principles with other robust frameworks:
- Focus on process over personality: Does the fund have a repeatable strategy?
- Prioritize low fees and high transparency.
- Diversify across styles—not just managers.
- Rebalance periodically without chasing past performance.
👉 Explore tools that support disciplined, data-driven investment decisions
The goal isn’t perfection—it’s consistent progress.
Frequently Asked Questions (FAQ)
Q: Can I practice value investing without picking individual stocks?
A: Yes. By investing in funds managed by disciplined value investors, you indirectly apply the philosophy through professional stewardship.
Q: How do I know if a fund manager truly follows value investing?
A: Look for consistent language in reports, long holding periods, low turnover ratios, and avoidance of market fads. Avoid those who chase hot sectors or frequently change strategy.
Q: Are there any advantages to using value investing in funds?
A: Yes—reduced emotional trading, better long-term focus, and alignment with sustainable business models. However, returns depend heavily on manager stability and market conditions.
Q: Should I avoid funds if the manager leaves?
A: Not automatically—but it’s a red flag. Investigate whether the fund has a strong team-based approach or relies solely on one individual.
Q: Is past performance reliable for choosing value-focused funds?
A: Only if it spans full market cycles (10+ years). Short-term outperformance can be noise rather than skill.
Q: What’s a better alternative for most fund investors?
A: A rules-based, diversified strategy focusing on cost efficiency, asset allocation, and rebalancing—complemented by selective exposure to high-conviction managers.
While value investing remains a powerful mental model, its direct application to fund selection faces practical limits. Success requires more than belief—it demands realistic expectations, rigorous research, and adaptability.
The bottom line? Learn from the masters. Embrace their mindset. But tailor their methods to the realities of modern fund investing—where manager risk is high, data is limited, and patience alone isn’t enough.