Arnold Van Den Berg's singular focus on value investing let him beat the market over a 29-year period-to the delight of his clients.

Ask Harold Berlfein what he likes about his investment advisor, and his advisor's integrity and disciplined value investment style are among the first things he'll talk about. So is the advisor's thoroughness and trustworthiness.

But it really comes down to this: After 27 years as a client of Arnold Van Den Berg, president of Century Management Inc. in Austin, Texas, Berlfein has fulfilled his dream of enjoying a worry-free retirement.

"When you're with a guy for all those years, you don't second-guess him," says Berlfein, a retired accountant living in Los Angeles. "I have friends who look at the stock market every day. I look at it when Arnie sends me a report."

Integrity has a lot to do with this, Berlfein says, but so does performance. Since Van Den Berg founded the company in 1974, the firm has brought its clients average annual returns of 15.70% net of fees-more than 200 basis points better than the average return of the S&P 500. Of late, the firm has also sheltered its clients from the volatile winds of Wall Street, with net returns of 43.62% in 2000 and 10.00% in 2001. Last year's loss of 0.43% was Century Management's first down year since 1990.

The firm is also ranked fourth in Nelson's Top 40 Value Money Managers list and 23rd among managers of all styles, with five-year returns that exceed those of such respected managers as Royce & Associates and David L. Babson & Co. as of year-end 2002.

It's the type of record that is certainly eye-catching, especially when you consider Century Management is a small, family-run advisory firm that shuns mutual funds and relies exclusively on the stock-picking prowess of Van Den Berg and an in-house team of analysts headed by his son-in-law, Jim Brilliant. Son Scott Van Den Berg, meanwhile, takes care of the financial planning side of the business.

Van Den Berg says there's nothing terribly fancy about how the firm's investment management side operates. The philosophy, he says, is value investing in the strictest possible sense. Century Management thrives on the mundane, the obscure and the ignored companies out there that have one thing in common: cheap share prices. One of the golden rules at the firm is that any company it buys must be selling at a 50% discount.

Not that the firm ignores the more recognizable names. Century Management has indeed made profits off companies like Union Carbide, Sears Roebuck and Ethan Allen. But according to Van Den Berg, what really churns the butter at Century Management are little no-name companies like Moore Products, Apogee Glass and Lufkin oil drilling. A good two-thirds of the firm's portfolio is made up of small- and mid-cap companies, many of which have been pulled out of Wall Street's heap of discards.

"We're basically acting as junk dealers," says Van Den Berg. "It's not a reflection on our genius. We are doing what Graham and Buffet taught, but probably better than most people."

Dogged Discipline

Many things have changed since Van Den Berg and his wife Eileen started the firm in their Los Angeles studio apartment back in 1974. The firm now has 28 employees and $870 million assets under management. Clients number in the hundreds, and ten years ago the whole operation was moved to Austin.

But one thing that hasn't changed is the way the firm invests-namely, strict adherence to the principals of value and diversification. Whether it be a market of bears or bulls, clients attest to the fact that this is one aspect of Century Management that has never changed.

Berlfein, who has been with Century Management since almost the beginning, says he ran head-on into Van Den Berg's disciplined approach the first time he met him. It was during a meeting at which Van Den Berg was explaining how he was going to place a fifth of Berlfein's $50,000 investment into a company called Diamond Crystal Salt.

"He was talking about all the positive things about the company and how undervalued it was. He just made a really good case," he recalls. "So I asked him, why not invest the whole $50,000 into the company?" The response he got was a lecture by Van Den Berg on diversification and on how his investment would be spread of out among no less than five different companies. "I liked his discipline," Berlfein says. "And it improved as time went on."

It's a trait that may be partly due to the fact that Van Den Berg learned to cope with life's struggles at a very early age. Van Den Berg was born to Jewish parents in Amsterdam during the outbreak of World War II. His family went into hiding soon after he was born, taking refuge in the same neighborhood where Anne Frank hid. Van Den Berg was finally separated from his parents at the age of three, when they arranged to have him and his six-year-old brother smuggled into a Christian orphanage by the Dutch underground.

His parents were sent to Auschwitz, where they were eventually liberated by American troops, while Van Den Berg spent the next three years in Nazi-occupied territory. Children at the orphanage were not mistreated, Van Den Berg says, but they and the rest of the city's populace were left with too little food and water. Some days, he recalls, he and other children wandered the fields looking for plants to eat, or water to drink.

By the time he was six years old and reunited with his parents, Van Den Berg said he was suffering from malnutrition and had a difficult time walking. "My father would say he was afraid to pick me up because it was like picking up a skeleton," Van Den Berg says.

His family moved to Los Angeles soon after being reunited, where his father resumed a career in the garment business and he and his brother enrolled in public school. Still weak from the effects of malnutrition and scurvy, Van Den Berg eventually took up rope-climbing to build up his strength-to the point where he set a school record by climbing a 20-foot rope in 3 1/2 seconds.

"When I graduated high school, I was in as good a shape as any athlete could be," he recalls.

After high school he worked in a gas station, then at a print shop, before becoming an insurance salesman and then a broker selling mutual funds. Along the way he got married and had a couple of kids.

Van Den Berg, in fact, thought he would stick with mutual fund sales and investment management, but then the bear market hit in 1968 and he lost all confidence in funds and fund managers.

"I was really devastated because I thought I had finally found a great career," he says. "Then when I saw how badly funds performed, I got upset and wanted to find out why."

Among the problems he found was that mutual funds rarely stuck to their guns in terms of investment style, which was compounded by the fact that fund managers come and go. So too did the money, with cash flows moving into and out of funds depending on the winds of Wall Street.

When he studied the investment philosophies of Graham and Buffett, however, Van Den Berg says he saw beautiful simplicity. Simply put, he says, it amounts to looking at a company as a business, establishing a market value and then investing with a margin of safety.

At Century Management, that margin has translated into a mandatory 50% discount, and the shares are sold off when they hit about 80% of market value. To find such deep discounts, the firm has to dig deep-into a corporate realm that's most often ignored by analysts. In the beginning, Van Den Berg says, this meant scouring the Standard & Poor's stock guide every week, page by page, and picking out the stocks with low P/Es and high dividend yields. Back then, he notes, a typical bargain company would have a P/E of 5, compared with an S&P 500 average of 8.

These days, computers handle much of the screening, but the analysis is the same, he says. So too are the results. Some examples of typical successful trades:

Moore Products, described by Van Den Berg as a "tired old company no one really cared about," was bought by the firm at $19 a share in 1996. Century Management felt the engineering company was worth $50. "We bought it at below liquidating value," he says. "We could have bought it and closed the doors and picked up some money." Four years later the company was bought out for $54 a share.

Apogee Enterprises, a glass company, was bought by the firm in August 2000 at $4 a share. The discount here was unusually high because they felt it was worth up to $20 per share. "This was right at the top of the market and everyone was buying technology," he says. "This was an old-economy company." They sold it in October 2001 for $13.25 per share.

"We probably buy companies cheaper than the average value manager," says Scott Van Den Berg, who is a vice president at the firm.

The firm looks at seven different criteria when setting private market value, including free cash flow, assets and liabilities, a company's place in its industry and the price comparable companies are selling for in the marketplace.

It's a formula that Van Den Berg says he's culled by closely studying the writings of value managers he admires, namely Benjamin Graham and Warren Buffett, as well as Philip Fisher, a theoretician whose work Buffett and others have studied assiduously. "I have files on 100 money managers I've followed throughout the last 30 years," he says. "I study their styles and try to learn from them."

Yet he still feels that what he's learned only amounts to "tweaks" to basic value investing. The firm has stuck with that formula for 28 years, despite the calls for change that come with every bear market, every bubble and every year in which another investment style is in vogue, the senior Van Den Berg says.

That's the way it was in 1998, when the firm eked out only a 2.17% return in the face of a 28.57% by the S&P 500. Van Den Berg vividly remembers a phone call that year, in which a longtime client and friend implored him to invest in certain technology stocks. Van Den Berg wouldn't budge, arguing that the prices of these companies were off the charts. The client pointed out that Van Den Berg said the same thing the year before, and the value of the companies went on to double.

"I don't care if the prices quadrupled," he responded. "It was like someone asking you to fly a plane when you can only drive a car."

That client left the firm a short time later, taking $3 million in pension investments with him-missing out on Century Management's 32.14% a year later and 43.62% return in 2000.

"The thing that the rope climbing taught me is the value of discipline, and I think that's one of the things that distinguishes us," Van Den Berg says. "It's the discipline of believing in something and sticking to it. Buying it at a discount with a margin of safety hasn't changed in 70 years and probably will never change."

To underscore that belief, Van Den Berg has implemented an ironclad rule at the firm: All employees must invest in the same stocks as do the firm's clients.

The Family Chips In

When your focus is on steadily building up an advisory business on one unchanging principal, you wouldn't expect there to be big turning points along the way. Yet Van Den Berg says Century Management did hit a milestone-thanks to his daughter Stacie.

Stacie accepted a job offer from her father in 1988, and soon after became the firm's first trader. Around the same time, Van Den Berg was trying to figure out how to use the firm's performance history as a stimulus for growth.

Van Den Berg felt his small firm's record should be solidified with an audit, but he knew it would involve the painstaking process of recording 14 years worth of trading-something that would take years.

But Stacie volunteered for the job and spent the next two and a half years getting the firm's trading records in order-including tracking down records from defunct businesses and searching through microfiche files.

"I don't remember exactly how long it took, but it was a long, long time," she says. "It's something I did out of love." She also had no doubt it would help her father's business. "I think he's just built a system and it works," she says.

When she was done, the firm had itself a quarter-century compilation of Century Management's performance, audited by Ernst & Young according to AIMR standards, Van Den Berg says. The audit, he says, has played a crucial role in the firm's growth in recent years. Since 1988, the firm has seen its assets under management grow from $82 million to $850 million and its staff grow from about 10 to 28. "Many of the people who are recommended to us now are institutions, and they do not accept unaudited numbers from a small firm," Van Den Berg says.

Crediting his son Scott with doing the marketing that got the word out about the audited numbers, and son-in-law Jim for the underlying performance, Van Den Berg says the firm gradually attained the bulk needed to attract larger institutions. While the firm's clientele used to be comprised solely of individuals, it now includes tax deferred accounts such as 401k plans and pension plans, including the San Antonio police and fire department pension fund, for which the firm manages $30 million. "I don't think we could have been in the running for that without an audited statement," he says.

Among the changes at the firm to deal with the fast growth has been the creation of two departments-one for marketing and customer service, headed by Scott, and the research department, headed by Brilliant and also including analyst Aaron Buckholtz, a longtime employee. A separate financial planning department was created three years ago.

The firm charges a 1.25% asset management fee, and an initial financial planning fee ranging from $1,000 to $3,500. Van Den Berg, however, has no visions of creating a "family office" type practice. The firm's focus, he says, will remain asset management. That's why, he says, one of the new additions to the firm will soon be a private mutual fund-partly to serve as an investment vehicle for client referrals who are unable to meet the firm's $500,000 account size minimum.

"I have a real problem telling someone who has been a good client for 20 or 25 years that we can't take their friend or relative because they don't have enough money," he says.

Stacie left the firm in 1995 to raise children, but other family members continue to play a role in the business. Brilliant joined the firm 16 years ago as a college intern. A friend of Scott Van Den Berg's son, Brilliant went on to get a CFA certification and became the firm's vice president and head analyst.

Brilliant became a member of the "family" when he married Stacie several years after she joined the firm. "One of my own personal principles was to never date your best friend's sister or the boss's daughter, so it worked out terrifically," he says with a laugh.

Scott was hired 11 years ago after working in real estate for four years. Scott now heads the firm's financial planning division along with his father, who was also Scott's shot-put coach in high school. Eileen, his wife, left the firm to raise the children but has since returned to again serve as the elder Van Den Berg's administrative assistant. Their youngest child, Debbie, works as a midwife.

Scott says "he just wanted to do his own thing" after college and not follow in his father's footsteps-until he had a chat one day with a 60-year-old veteran at his real estate office.

"He asked me, 'What are you doing here?'" Scott says. "He said, 'Listen, put your ego in your pocket because it sounds like your father has a lot he can teach you.' That pushed me over the edge."