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Sometimes even Old Masters go through a funk. In an August letter to his shareholders, Oakmark Select manager Bill Nygren laid it on the line. Housing related favorites such as Washington Mutual and Pulte Homes were getting pummeled. Other holdings in 20-stock portfolio, like McDonald’s and Viacom, weren’t doing much better. Calling his fund’s performance since the end of the second quarter “dreadful,” Nygren said the preceding weeks had been “as frustrating as any period” in his career.

The frustration has only continued. All told, the fund has lost more than 12% in 2007, badly lagging the S&P 500. As a patient and disciplined value investor, though, Nygren still sees plenty of promise in his $5.3 billion fund’s lineup. “We believe that, in general, the names in the portfolio are better values today than they were six months ago,” he says.

That spells opportunity to buy a top-notch fund while it’s down. In fact, Nygren wrote in his letter that he had just put more of his own money into the fund. “If people think we’re as stupid as our one-year record makes us look, then they shouldn’t own our fund,” Nygren says. But for investors who think the firm’s ten-year record is more indicative, he says, “this could be a very interesting time to make new or additional investments in the fund.”

We agree. Despite the recent turmoil, Oakmark Select has gained nearly 13% a year over the past ten years, trumping the S&P. With conscientious management, a reasonable 0.99% expense ratio, and the promise of patience, the fund offers plenty of reasons for investors to think brighter days lie ahead.

Every now and then, old and new can work well together. Just ask Chuck Akre. After being closed to new investors for more than two years, the veteran money manager’s 11-year old fund, formerly FBR Small Cap, reopened in January – and welcomed a fresh influx of more than $550 million. With cash accounting for more than a third of the portfolio, FBR also announced over the summer that it would change the fund’s name and eliminate it’s policy of investing at least 80% of assets in companies with market values of less than $3 billion. The moves mean that Akre now has the flexibility to buy stocks of larger companies – or to hold large cash positions while waiting for opportunities.

Despite those shifts, Akre’s $1.6 billion portfolio has remained remarkably stable – as has the investing approach that produced annualized gains of 15% over the past ten years. “Our investment style hasn’t changed an iota,” he says. Indeed, investments must still meet strict valuation criteria: Akre will pay only a modest multiple of free cash flow per share, typically between ten and 20, depending on the business. Akre says he will still keep a concentrated portfolio of around 40 stocks, and he’ll continue to look for “little compounding machines” – businesses that have a relatively high return on capital (15% or higher), with solid management teams and opportunities to reinvest excess cash to juice returns.

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