Six Decades of Value Investing: Q&A With Windsor II Fund’s Lew Sanders

by Vanguard, 10/3/25

Portfolio manager Lew Sanders has quietly built a legacy as one of the most influential value investors of the past 50 years. After joining Sanford C. Bernstein & Co. as an analyst in 1968, he went on to manage the firm’s flagship U.S. value strategy for 36 years. His disciplined approach and deep research orientation helped cement his reputation as one of the industry’s premier investment managers. Sanders later served as chairman and CEO of Bernstein and its successor firm, AllianceBernstein.

In 2009, he founded Sanders Capital, a boutique value firm grounded in the same research-driven approach he honed over decades. A year later, Vanguard tapped the firm to manage a portion of our Windsor II Fund (VWNAX), a multimanager value strategy that recently marked its 40th anniversary.

In this Q&A, Sanders shares insights gained over nearly six decades of investing. He discusses value investing in an era of lofty equity valuations, the rapid commercialization of AI, and the risks—and potential upsides—of U.S. trade policy.

Q: How would you describe your value investing strategy?

A: We define value as a low price for a future cash flow, as measured against the standards of the day. The behavioral bias of loss aversion—which posits that the pain experienced from a loss is disproportionate to the pleasure of an equivalent gain—is pivotal. That skewness is the essence of the value opportunity. Because if you think about an investment opportunity in terms of potential losses that generate investor anxiety, then valuation will be excessively affected. The question is whether the source of that anxiety is transitory or lasting. If it's the former, you have an opportunity. If it's the latter, you have a value trap.

Q: So how do you tell a value opportunity from a value trap?

A: Temporary adversity is predominantly cyclical. It derives from economic developments like a recession or a period of unusually high interest rates, which then, in time, reverse.

Lasting or structural change derives from business model disruption, typically technological in origin. Historical examples include microprocessors displacing mainframe computers, digital photography displacing analog film, and online retailing disrupting physical retailing.

It’s through research that we seek to identify these trends and assess whether the anxiety that they produce will prove lasting or temporary.

Q: Where do you uncover compelling value opportunities in markets dominated by high-valuation growth stocks?

A: Almost all high-growth phenomena contain investments that benefit from that growth, but are priced accessibly, typically because there's some set of risk factors that might offset that apparent opportunity.

Take the current boom in graphics processing units (GPUs) and other accelerators used in AI computing platforms. It turns out that 100% of the chips used in these neural network computing platforms are fabricated by TSMC. But because TSMC is domiciled in Taiwan, its valuation has been far below that of companies like NVIDIA or Broadcom, which ironically rely on them entirely for their output.

Another opportunity arises when there are setbacks in a strong growth trajectory. Meta is a good example. Just two or three years ago, Apple blocked its access to user data and TikTok took market share—both disrupted growth and pushed the stock into deep value territory. But these proved temporary, in line with our research judgment. So, a major opportunity emerged in a high-growth company. This pattern of finding value in growth stocks happens regularly.