Is It Time to Buy Buffett and Miller?

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What a kettle of fish! The S&P 500 has fallen some 11.5% so far this year. Even more alarming, many revered investors are posting rotten numbers. For instance, Warren Buffett's Berkshire Hathaway (NYSE: BRK-B) is down almost 19%, and Legg Mason Value Trust (LMVTX), the flagship fund of Legg Mason's (NYSE: LM) Bill Miller, has dropped by a whopping 29%.

Are these value-oriented investors showing us that value isn't all it's cracked up to be? Not at all. It's just that:

• Most stock investments don't go up in a straight line. We should all expect ups and downs.
• Many good and even great investments have slumps, which can last months or even years. Boeing (NYSE: BA), for example, has fallen by 25% this year. Lowe's (NYSE: LOW) lost 27% last year. But do you really think either company is going out of business? Me, neither.

Berkshire has suffered partly because of its investments in the hard-hit financial sector -- it holds, among other names, SunTrust Banks (NYSE: STI) (down 23% in 2007 and 34% so far this year) and American Express (NYSE: AXP) (down 13% and 25%, respectively). Miller's fund got whacked by the likes of Freddie Mac (NYSE: FRE), which fell some 48% in 2007 and more than 85% year to date.

Value slumping
Value investing is still a solid philosophy. In essence, investors seek a dollar's worth of assets for, say, 50 cents. Even so, value investing has been underperforming the growth-investing approach, in which investors chase quickly growing companies. As of late July, growth stocks were beating value stocks this year by a whopping 8 percentage points.

Yet historically, value has outperformed growth over longer periods. And that's why it's troubling that many investors just will cut their losses and run. Legg Mason, for example, has suffered a major exodus of capital. But if you determine that a particular stock or fund is a good value, and then it drops even further, you're probably looking at a more compelling bargain. It may be time to buy, not sell.

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