The Advantage of Hard Work

““In any sort of contest…it’s an enormous advantage to have opponents
who have been taught that it's useless to even try...”" 
— Warren Buffett

For the past decade, the advantage described by Mr. Buffett has been cold comfort to fundamental investors who believe in the power of bottom-up analysis. Instead of leveraging the benefits of their work, portfolio managers with an active approach had to watch as index funds were flooded with cash and valuations for growth stocks hit stratospheric levels. 

However, signs are emerging that investors are beginning to say “enough.” Flows into passive products have slowed during the pandemic according to data from the Investment Company Institute, and performance for small caps ended the year on equal footing with returns posted by mega caps. The emerging trend had a meaningful impact on the performance of attractively valued businesses.

As value investors, we were cheered by this budding return of reason, but recognize not all investors have abandoned their spendthrift ways. Whether its total sales in Manhattan’s luxury home market clocking in at 30% higher than the previous highwater mark set in 2015 or investment bankers bringing a record volume of initial public offerings to market, pockets of the public seem to still be clinging to a “price is no object” mentality.

For equities, the result has been a sliver of stocks driving returns of broad indices. For instance, just five companies accounted for more than 65% of the gains in the tech-heavy Nasdaq 100 Index for the year. The byproduct of investors chasing the largest names has resulted in top-heavy indices, as shown below, where a handful of names can make or break performance for passive investors.

Tail Wagging the Dog?
Heartland Advisors Value Investing Total Market Cap to GDP Chart

Source: S&P Dow Jones Indices and Ned Davis Research, Monthly data from 01/31/1972 to 12/31/2021. Copyright 2021 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at All indices are unmanaged. It is not possible to invest directly in an index. The S&P provides an indication of broad market performance but is not a benchmark of the Funds. Past performance does not guarantee future results.

The emergence of the Omicron COVID-19 variant and the knee-jerk selloff that followed provides a vivid example of how fluid the economic narrative has become—and the risk index investors can face when today’s market darlings become dogs overnight.

While we cannot predict the ebb and flow of economic growth, we recognize a pullback is a distinct possibility in the year ahead. We will stick with our time-tested process. As such, the team is steadfast in its focus on finding business with attractive valuations, balance sheet strength, and catalysts that can result in a change in perception by investors. This approach should result in a favorable risk-reward profile in the quarters and years ahead. Or, to paraphrase Mr. Buffett, we firmly believe putting in the work provides an advantage.

Your Heartland Team


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Past performance does not guarantee future results.

An investor should consider the Funds’ investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information may be found in the Funds' prospectus. To obtain a prospectus, please call 800-432-7856 or visit Please read the prospectus carefully before investing.

Investing involves risk, including the potential loss of principal.

There is no guarantee that a particular investment strategy will be successful.

Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

The statements and opinions expressed in this article are those of the presenter(s). Any discussion of investments and investment strategies represents the presenter’s views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. Any forecasts may not prove to be true. Economic predictions are based on estimates and are subject to change.

Heartland Advisors defines market cap ranges by the following indices: micro-cap by the Russell Microcap®, small-cap by the Russell 2000®, mid-cap by the Russell Midcap®, large-cap by the Russell Top 200

The Heartland Funds are distributed by ALPS Distributors, Inc.

Heartland’s investing glossary provides definitions for several terms used on this page.