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from Outstanding Investor Digest's December 31, 1996 Edition

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CENTURY MANAGEMENT'S
ARNOLD VAN DEN BERG

(continued from preceding page)

OID: So, given all of that, why is this thing so cheap?
Van Den Berg: That's easy. In this kind of a market, what people are looking for is earnings momentum and earnings growth. These people would be a little too stodgy for your average hot money manager.

OID: That's what we keep hearing - that the market today is almost entirely momentum driven.
Van Den Berg: I can see it by looking at the stocks that are moving. This company's really cheap. But people probably won't look at it until there's a bear market and they want a place to hide and they know that there's some downside protection here.

OID: After the wounds have been inflicted.
Van Den Berg: I would think so. One of the things that impressed me about the value approach is that the portfolios of the Schlosses and the Tweedy, Brownes of the world - the diehard value guys - held up amazingly well in the 1973-74 bear market.
On an absolute basis, obviously the performance wasn't great - when you compare it to a Treasury Bill or something like that. But when you go through a market that declines 14% and 26% in successive years and show very little in the way of losses, I think that pretty much says it all.

OID: Or as Bill Ruane likes to say, "To win the race, you first have to finish it." - just the reverse of the newsletter credo of "Live fast and die poor young."
Van Den Berg: My answer to this has always been that if you don't lose, you win. If we buy 20-25 companies like this one, some of them will continue to disappoint and lag and so forth. But there'll be enough winners in there to make up for the losers as long as we don't lose a lot.
And it's very difficult for me to see how you can lose a lot in a company that is potentially a very desirable acquisition, that has all of these assets - including excess assets that aren't needed - that has high R&D that can be cut and on and on and on...
So I tell my clients to look long term. If we don't lose money on any of these and we have the winners that are invariably some percentage of this group, then we'll be fine. In other words, as long as we don't lose, we win.

OID: Or, as Buffett says, there are only two rules.
Rule #1: Don't lose money.
Rule #2: See rule #1.
Van Den Berg: Exactly. And as long as we do that, when I look out 20 years, I don't know if we'll earn 15%, which would be 16 times our money, or 18%, which would be 27 times our money, or 20%, which would be 38 times our money. However, who would be unhappy in any case?

OID: You obviously married well...
Van Den Berg: I understand that demand for Ben Graham's books is inversely correlated to the stock market: The worse the market gets, the more demand goes up -because people start thinking about the downside. Well, that's always our approach - not just after a market decline.

OID: And I assume this relates to Moore Products...
Van Den Berg: When we discuss private market value, price-to-sales multiples, etc., we're talking about the upside. But the most important thing always is not to lose. The assets I just mentioned are your downside protection. I'm very comfortable buying it well below liquidation value. And if the company does better than it has historically, then that's fine, too. We're just not counting on it.

OID: I somehow gathered...
Van Den Berg: A true value investor might just say, "This one's selling at only two-thirds of liquidating value. What more do you need?"

OID: You're not a true value investor?
Van Den Berg: That isn't the only thing we look at - because even liquidating value can be deceiving. You can have inventory and plants that aren't worth what they're being carried for on the books. And even if they are today, they can evaporate pretty quickly.
In this case, however, we think this is a pretty solid liquidating value. The excess pension is there. And so is the LIFO reserve and the real estate. All are solid assets that we'd be happy to own at the prices I've mentioned.
So even if Moore Products' private market value is "only" $45, I think you can buy it pretty safely at $19.

OID: And you have?
Van Den Berg: As I recall, we've paid as little as $15± and as much as $19±.

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