November 2, 2010 — Will the all-powerful market that always knows best – and always bounces back – be able to do it again?

More than 600 investors, scholars and students gathered at the third annual Value Investing Conference, sponsored by the University of Virginia's Darden School of Business and its McIntire School of Commerce on Oct. 28 and 29, for presentations and panel discussions to explore the theme "Reset or Recovery? The Macroeconomy and Value Investing."

Darden's dean, Robert F. Bruner, opened the conference with his view of the "New Normal." Though he does not believe the economy has "re-set," which entails a downward step-change in welfare, future and self-confidence, he does see precursors to a re-set in the future if unemployment, low growth and the fragility of the recovery in the U.S. do not change soon.

"Based on the evidence, it looks to me as if we are in a 'pre-set,' not necessarily a 're-set,'" Bruner said. "Free markets and financial institutions will always have an element of instability. It's impossible to predict future financial crises, but a much bigger realignment awaits the U.S. economy if fundamental problems are not addressed."

Some of the investing world's most well-known names then shared their world views, including Marc Faber, editor of the Gloom, Boom & Doom Report; James Grant, founder and editor of Grant's Interest Rate Observer; J. Kyle Bass, managing member and principal of Hayman Capital; Richard Baker, president and CEO of Managed Funds Association; Stephen Roach, non-executive chairman of Morgan Stanley Asia; Christopher Whalen, co-founder of Institutional Risk Analytics; Whitney Tilson, founder and a managing partner of T2 Partners LLC; and Brian Rogers, chairman of the board and chief investment officer of T. Rowe Price Group. 

Themes that emerged over the two-day conference included: gold fever, the housing crisis, government intervention in capital markets, currency volatility, and the risks and rewards presented by emerging economies. And, of course, China.

"The U.S. consumes, and China produces," Faber said. "U.S. overconsumption stimulated the Chinese economy and changed the global economy in a major way."

"Chinese interest rates are low, and investment is too fast," Grant said. "If there is a crisis ahead for China, what will it mean for the U.S.?"

"They need internal, rapid growth," Roach said. "When you have a labor-saving growth model, and you have so much surplus labor to absorb, you need to grow your GDP more rapidly to absorb that surplus labor and avoid social instability."

On day two, a roundtable discussion among a distinguished group of investors highlighted what worked and what did not work for clients' portfolios. The Investor Roundtable included: Lisa O'Dell Rapuano, founder and portfolio manager of Lane Five Capital Management; Richard A. Mayo, founder and chairman of Mayo Capital Partners; Donald M. Wilkinson III, president and CEO and a director of Wilkinson O'Grady & Co., Inc.; Frank M. Sands Jr., CEO and chief investment officer of Sands Capital Management LLC; and Robert W. Smith, portfolio manager for international equity strategy at T. Rowe Price.

The investors' dialogue, moderated by Darden professor Richard B. Evans, exposed the inexact nature of how to make investment decisions. Some decisions that seemed sound did not yield great results; other bets resulted in great rewards.

"If you don't ever make mistakes, you aren't working hard enough," Rapuano said.