OREANDA-NEWS. October 06, 2015. James P. Barrow celebrated his 30th anniversary in June as lead portfolio manager of Vanguard Windsor™ II Fund, part of a career that spanned more than five decades, that's been marked by a patient, long-term investing approach, and that's helped establish him professionally as a traditional value investor and a contrarian. The native of South Carolina, who early on passed on offers to work in New York City in favor of Dallas and who has since taken the less traveled route to investing success, is set to relinquish his portfolio management responsibilities for Windsor II Fund at the end of the year.

In this interview, conducted at the time of the 30th anniversary, Mr. Barrow reflected his long career, his investing beliefs, and his relationship with Vanguard.

Vanguard: How did you choose a career in investing?

James Barrow: It goes back to a couple of college courses I took. I liked them, thought they were interesting; and I decided to pursue that. This would've been in the early '60s. And I've been doing pretty much exactly what I do now since then, which is following stocks and building portfolios and investing.

How has the business changed over the years?

Mr. Barrow: Well, it's gotten a lot bigger, and it's got a lot more people involved. U.S. investors are much more interested in not only U.S. investments but also global investments, and we have products in both of those areas, and also emerging market investments, which were not very common years ago.

What components of your approach have led to your long-term outperformance?

Mr. Barrow: You set up a series of requirements for a portfolio and a stock, and you don't vary. It may not be popular now, but eventually it all has to fall into place, because a good investment is generally defined with the laws of economics. Is it profitable? Can you buy it? Can you sell it? Do you trust the people that run it? What's the accounting like? All of those things kind of fall into line. If you've got something that meets all your criteria and you've got enough patience, then it helps. When you look at the markets today and the participants in the markets today, there's not a lot of patience exhibited; and we do have patience.

So in the hedge fund community, every profit is short-term because they get paid on the basis of realized profits. And that means you have to realize a profit. Therefore, all of the returns are short-term. In our case, we try to hold them long term if we can. We like dividends. We're not involved in instantaneous performance. We don't try to do that. As a matter of fact, if there's a variance of opinion about a situation we own, it's probably good because it probably is the opportunity to either sell, sell it at a higher price, or to buy it at a lower price.

Did you make any mistakes over the years that you learned a valuable lesson from?

Mr. Barrow: I've always found if everybody likes (an investment), it must go down; and if nobody likes it, it could go up but not necessarily. The majority can be right for a while. But if everybody's in it already, then there's probably no reason to continue in that. Price is a very important component of an investment, maybe the most important component.

Your commentary seems to reflect a distinctively Texan skepticism of a lot of what's popular in the markets. How has working out of Texas shaped your views of investing?

Mr. Barrow: I don't think it's just Texas. I think there's a Northeastern corridor phenomenon where all these people see each other all the time and talk about the same things all the time, and there's a certain sameness that particularly comes out of New York and Boston but we don't really have in the rest of the country. It wouldn't necessarily be Texas. If you were headquartered in Kansas City or Omaha or Oklahoma City, you'd probably have the same kind of a reaction we do in that we're not tied up in kind of that crowd frenzy that occurs up in New York.

If you had to invest your life savings with another manager, what would you look for?

Mr. Barrow: I'd want somebody who was disciplined, patient, had a bias toward receiving some income from the assets, who was not paid to take a risk. That's part of the problem with the hedge fund community. You're paid to take inordinate risks, because if you take inordinate risk you could get an inordinate gain, then it's all about the manager's compensation. I'd rather not do that. I think you'll probably get what you expect.

What's the most common question you receive from investors?

Mr. Barrow: It's probably something like "Why do you own a certain stock?" I basically say that the reason is because I think the fundamentals are not reflected in the price.

How have you and Vanguard maintained such a good relationship for 30 years?

Mr. Barrow: Well, I can recall a time in 2000, first quarter 2000, where value managers and the markets had been all about growth; and a bubble was all around us, and we knew the bubble was all around us, and we were lagging in the market. I had been up here and visited, and I got a phone call from Vanguard; and they said, "We believe in what you're doing. Hang in there." And we beat the market 20% [actually 24%] that year because everything that was going on, all of a sudden, reversed itself.

Notes:

  • All investing is subject to risk, including the possible loss of the money you invest.
  • The views expressed by Mr. Barrow are not necessarily those of Vanguard.
  • Past performance is not a guarantee of future returns.