How has van den Berg done it?

Although he is not quoted as frequently as master value investor Warren Buffett, value investor Arnold van den Berg's long-term investment returns at Century Management are nearly as impressive.

Since its 1974 inception, the firm has delivered more than 16% annual returns to investors before fees, and nearly 15% annual returns after fees. As Century points out, that means the firm would have doubled your money every 4.8 years.

How has van den Berg done it? Mostly by concentrating on buying stocks that are out of favor with other investors. At a presentation he gave in 2006 (which was transcribed in an excellent issue of Outstanding Investor Digest), he described four psychological states investors experience that he takes advantage of in order to earn those outsized returns.

• Apathy: The stock price has gone nowhere for a number of years, and people are just tired of it.
  
• Disgust: The stock has done nothing; earnings and sales might be down. People might have lost money holding on to it and can't bear to own it any more.
  
• Fear and panic: The bad news hits, the company runs into trouble, and the price drops off a cliff. Sell! Sell!
  
• Anger: Nothing's gone right while holding it, lost a lot of money, it will never turn around! Just dump this piece of garbage!

Those conditions, especially the last two, lead investors to "buy high, sell low." It's from those same people that Van den Berg buys his stocks. "People, acting as a herd," he said, "do some very foolish things because of emotions that block out reason and intelligence. ... So don't let your emotions dominate."