The Other Guy From Omaha.

Warren Buffett, that deity of value investing from Omaha, has long counseled patience in the stock market. Wallace Weitz, a lesser-known Omaha money manager and a Buffett acolyte, needs investors' patience nowadays.

Weitz's largest mutual funds have been laggards recently. Since Jan. 1, 2005 his two main funds, Weitz Value and Weitz Partners Value, have delivered cumulative returns of --0.5% and 0.8%, to the S&P 500's 10.8%. Impatient investors have yanked $1.5 billion out of Weitz Value (now with $2.9 billion in assets) and $990 million out of Partners Value (now $1.9 billion). And that's on top of the $840 million they pulled from the funds in 2004.

Wally Weitz is philosophical. "It is impossible to earn above-average long-term returns without being willing to be out of step with the market from time to time," says Weitz, 57, a plainspoken guy with a penchant for plaid shirts. "These are the times that set up the portfolios for superior long-term performance." As Buffett has put it: "You can't buy what is popular and do well."

Weitz, who toyed with joining the Peace Corps after college but chose Wall Street instead, moved to Omaha in 1973. Working for brokerage Chiles, Heider in the 1970s, Weitz met Buffett at a bridge game and attended annual meetings of Buffett's holding company, Berkshire Hathaway, where he drank in the great man's wisdom. "I was fortunate enough to have caught on to it early," Weitz says, referring to the art of value investing. He bought Berkshire shares at $270 in 1979.

Weitz started his own firm in 1983. These days Buffett hosts dozens of student groups who come to Omaha to listen to him. Some of them also visit Weitz's shop. "I'm the warm-up act for Warren," he jokes.

As you'd expect, both men revere Benjamin Graham (1894--1976), whose philosophy, as Buffett says, teaches the virtue of "buying $1 for 40 cents." Since Weitz and Buffett have similar investment styles, they're both in a slump of late. Berkshire Hathaway, a mutual-fund-like assortment of insurance, candy, jewelry and lots of other companies' stocks, happens to be one of Weitz's largest investments. It is down 9% from its high two years ago.

Weitz and Buffett made some similar purchases recently. Both Nebraskans added new positions in drooping Wal-Mart Stores and Tyco International. Just as Buffett does, Weitz buys what he understands, not what is hot. You won't find any Google shares in his portfolios. Nor any hot energy names. Instead you'll see some rather cold financial and media stocks and a big wad of cash (now 13% of assets at Value and 10% at Partners Value, down from as high as 34% and 30%, respectively, last year). Buffett, to the vexation of some investors, also is sitting on a mountain of cash and bonds (50% of Berkshire's market value), waiting for better opportunities, and Weitz notes that it rarely pays to bet against Buffett.

Over time Weitz has proved his own doubters wrong. He has logged an impressive 14% annual return over the past ten years in each fund, 4.8 percentage points better than the S&P. One or both of the funds have appeared on the Forbes Honor Roll for each of the last six years.

Like Buffett or Graham, Weitz aims to buy parts of companies at a discount to what an informed, rational acquirer would pay for the whole thing if he were planning to keep it forever and wanted to earn a 12%-to-15% annual return. He tries to look out ten years or more. What keeps Weitz out of the energy sector, which has been the place to be over the last couple of years? An unwillingness to compromise his price discipline. Weitz is also wary of tech names in a Buffettesque way because he thinks it's difficult to predict the consistency and stability of their cash flows.

Financial services make up 35% of Weitz's assets; one of his largest holdings is scandal-ridden Fannie Mae. The government-backed mortgage titan played games accounting for its derivatives. Fannie, he says, is "a stock a lot of people don't want to be seen with." Since 2004, when the questionable financial dealings came to light, the stock has fallen from $80 to $52. To Weitz the troubles are "fixable."

Mortgage company Countrywide Financial is another unloved stock. This time the culprit is the end of the refinancing boom that will presumably come as interest rates climb. Overlooked, says Weitz, is that Countrywide has a sizable business servicing the loans and that this business is countercyclical to mortgage origination. When rates rise, origination revenue falls, but the servicing portfolio is more valuable because fewer mortgages are prepaid. The mortgage market should keep growing at 7% to 8% yearly, he says.

Value investors pounce on stocks beaten down by bad news. Last year Weitz bought into American International Group after New York Attorney General Eliot Spitzer chased Maurice Greenberg out of the chairman's office. Among Greenberg's supposed sins was booking cash obtained from a Berkshire Hathaway unit as premium revenue rather than as a loan. The resulting stink is part of the reason Berkshire's stock is off.

"Old media," at 17% of Weitz's assets, constitute his second-largest sector. He recognizes that ad dollars are moving to the Internet but believes that investors have overreacted. "As the Coneheads might say on Saturday Night Live, they generate mass quantities of free cash flow," says Weitz. Meaning: Broadcasters and newspapers produce cash from operations well in excess of capital outlays for new antennas and printing presses. Washington Post Co. is among his biggest holdings (Buffett, by the way, owns 18% of it), with free cash last year of $285 million on revenue of $3.6 billion. Ad revenue is weak, but the Kaplan education unit is doing fine.

Weitz funds don't charge sales loads. Annual expenses are moderately low at 1.1% and yearly portfolio turnover is on the low side--40% for the Value Fund, 36% for Partners Value.