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.
Q: AI adoption is accelerating much faster than past shifts in technology. Why?
A: Adoption of AI is rapid because of its very character. It turns information into intelligence and democratizes access to knowledge at every level of sophistication.
The surge in demand is driven by rapidly increasing utility and ease of access—both for consumers and enterprises. This is amplified by changes in how AI models draw inferences from data to make predictions and decisions. We’re seeing a shift from single-shot responses to chain-of-thought reasoning, which improves accuracy, reduces hallucinations, and enables more human-like conversations. But these models are extremely compute-intensive, often requiring 10 to 20 times more resources than single-shot responses.
This surge in computational demand has triggered a sharp increase in demand for AI compute capacity. About 40% of our Windsor II Fund portfolio is now invested in companies that either enable AI—like chip fabricators and hyperscale cloud providers—or use AI to enhance their business models, such as Meta and Google.
Q: What are some secular trends you're watching closely, other than AI?
A: One is the continued evolution of retailing through automation, which is lowering fulfillment costs and shortening delivery times—further improving the online value proposition.
We’re also watching the collapse of linear television. As a mainstream medium, it’s in steep decline. Where is that audience going, and what are the implications for information, entertainment, and investment?
And in a more conventional context, we believe we’re near peak oil, with the hydrocarbon market entering an era of chronic oversupply and lower prices.
Q: What’s your take on U.S. trade policy and the impact of tariffs?
A: We see the tariffs as a form of economic pressure—either they reduce corporate earnings when absorbed by companies, or they weaken consumer purchasing power when companies raise prices to cover the cost.
In either scenario, we believe the impact will be short-lived—primarily limited to the third and fourth quarters of this year—and relatively modest when viewed in the proper context.
Looking ahead to next year, we’ll likely see benefits from increased investment in manufacturing, particularly efforts to reshore high value-added goods by both U.S. and foreign-owned companies. Taken together, these developments suggest limited disruption, and we believe 2026 looks pretty good.
Q: How has value investing changed since you began your career in the late 1960s?
A: First, the pace and impact of technological change have accelerated, leading to frequent business model disruptions. What once looked like value opportunities can now be value traps.
Another more glacial change has been demographics. If you go back to the earliest forms of systematic value investing—think John Neff and Vanguard Windsor Fund—there was steady growth in household formation and the workforce, which supported even mature industries. That tailwind is gone.[LC1]
This matters because traditional value investing often relies on low prices for current cash flows. But if those cash flows no longer grow, their valuations must adjust. To stay competitive with growth assets, they need higher yields, meaning lower prices.
So, conventional metrics aren’t as reliable as they once were. That’s why our research is forward-looking. It’s informed by, but not necessarily tied to, historical measures of growth or profitability.
This interview was edited for length and clarity.
Notes:
The fund’s top ten holdings as of July 31, 2025:
Microsoft Corp. 5.4%
Alphabet Inc. 3.7%
Amazon.com Inc. 2.8%
Apple Inc. 2.7%
Meta Platforms Inc. 2.2%
Taiwan Semiconductor Manufacturing Co. Ltd. 2.1%
Bank of America Corp. 1.5%
HCA Healthcare Inc. 1.4%
Procter & Gamble Co. 1.3%
F5 Inc. 1.2%
Top 10 as a % of total net assets 24.3%
The holdings listed exclude any temporary cash investments and equity index products.
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