Banks have been beaten down recently, so they would seem a prime hunting ground for contrarian investors. Orbis analysts have looked at many of the banks, but bought relatively few: the potential gains are enticing, but Orbis views them as insufficient to compensate for the high risk of loss.

During the more than 20-year boom in financial services, lending standards were loosened, regulations were relaxed, and interest rates were lowered, and many of these accommodative policies remain in place today. But not all banking systems share this history. Brazil, for instance, has not compromised soundness in pursuit of profit. In Brazil, interest rates are higher, capital cushions larger, and total debt lower than in Western banking systems. The Orbis Global Equity Fund holds Banco do Brasil, which shares much of the upside potential of its Western peers without a similar level of risk.

Orbis believes that most economic and financial variables tend to revert to their historical averages over time. In the US, corporate profit margins are now at multi-decade highs. Many investors seem to expect margins to persist at elevated levels - or expand even further. Unsurprisingly, Orbis has found few opportunities in sectors where margins and valuations are especially high, such as US basic materials and industrials. In this environment, Orbis prefers to focus on companies with meaningful pricing power and the ability to maintain or increase profitability regardless of the economic environment.

In the two trading sessions following Japan's devastating 11 March earthquake and tsunami, Japanese shares lost more than 16% of their market value. Orbis concluded that this reaction far exceeded the long-term impact on intrinsic value and added to many of the Orbis Global Equity Fund's Japanese holdings while holding others in the face of panic selling. In Orbis' view, many of these companies were undervalued before the earthquake and the sudden sell-off made them even more attractive. Although the earthquake's long-term impact on the Japanese stock market is uncertain, Orbis believes the Bank of Japan's aggressive monetary response is potentially positive for share prices.

In 2010, the Orbis Global Equity Fund meaningfully underperformed its benchmark. A number of macro factors swayed markets this year, but none fully explain the poor performance. Put simply, there were fewer winners than losers and few big winners over the year. Orbis' timing over the period was also disappointing. SanDisk is a classic example of good stock picking but poor timing. Orbis began purchasing shares in November 2008 at around US$10, and they continued buying as the price fell below US$7. At the time, SanDisk was trading below half its tangible net asset value, and Orbis believed its licensing business alone was worth US$6 to US$9 a share. After bottoming out around US$5, SanDisk rose steadily. Orbis started selling in April 2009 at US$13 and exited the position by May 2010, when it was trading at US$40. Today the stock trades above US$50. In hindsight, Orbis could have produced better returns by keeping the whole position and letting their profits run. Over the long term, however, they believe it is more important to maintain a disciplined, value-oriented approach, even at the cost of poor short-term performance. Often, this makes them early to buy - and to sell.