This top 1% fund manager shared 3 lessons from the dot-com bubble and 2008 financial crisis that help him outperform in today's volatile market
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- Scott Barbee, BI's Investor of the Month for March, has been a fund manager for over 25 years.
- He's guided the Aegis Value Fund through the dot-com bubble and the 2008 financial crisis.
- Here's how Barbee uses the lessons from previous recessions to outperform today.
Scott Barbee, manager of the Aegis Value Fund (AVALX) and Business Insider's Investor of the Month for March, is no stranger to the ups and downs of the stock market.
Barbee has overseen the fund since its inception in 1998, which means he's weathered some of the biggest market crashes over the decades.
Barbee specializes in finding deep-value small-cap companies. He analyzes investment opportunities using a bottom-up approach and looks for companies with low debt balances, robust cash flow, and cheap valuations.
Despite tariff volatility and recession fears rocking the market in 2025, Barbee is finding ways to outperform. His fund is up over 11% year-to-date.
Below, Barbee shared with Business Insider some of the takeaways he's learned from steering the fund through over 25 years of market cycles.
Don't buy into the hype
When asked about the AI trade, Barbee expressed caution and drew comparisons to the dot-com bubble.
"Historically, you've seen certain situations where folks get very interested in a particular type of scientific advancement, and you get very high multiples for a while, then you get over-building and corrections," Barbee said.
Similar to how internet-based companies skyrocketed in 2000 and then plunged almost 80% afterwards, AI stocks could be heading into bubble territory, Barbee believes.
Especially in recent years, the meteoric outperformance of the Magnificent Seven has been perplexing to Barbee, especially as interest rates crept up from pandemic lows.
"Typically, higher interest rates act as a gravitational force pulling the multiples down," Barbee said.
In his opinion, the momentum these tech stocks have seen in recent years creates a snowball effect where investors keep on allocating capital to the sector, bidding up valuations past reasonable levels.
"My sense is we're going to get a correction at some point," Barbee added.
Have conviction in your choices
Instead of hopping aboard the Magnificent Seven train, Barbee swooped up unloved materials and metals stocks.
"A lot of these have scored poorly on ESG frameworks. In 2021, 2022, there was this huge prevalence of ESG-type investing and mandated divestment of fossil fuel-type businesses, and mining is sometimes viewed poorly under those rubrics," Barbee said. "That's led to a lot of purging of positions for non-fundamental reasons that long-term investors could take advantage of, and we positioned ourselves into a lot of those names."
It turns out materials and metals ended up being the areas of the market that outperformed amid tariff volatility. Gold is at an all-time high as investors run to safe-haven assets, and Barbee thinks there's still more room for gold mining stock prices to rise.
Some things are out of your control
Even the best fund managers have bad days — or bad years.
"I think 2008 was one of the roughest years in my career," Barbee told Business Insider. "We had a big drawdown. It was 50% or so."
The fund started 2009 with another 20% decline. The especially frustrating part about the fund's 2008 performance was that much of it was out of Barbee's control.
"You can do your work, you can determine whether the company's on fiscally solid ground," Barbee said. "We suffered these big drawdowns anyway because it was much less about the companies themselves. It was much more about the other owners of the companies."
When homeowners began defaulting on their mortgages, highly levered banks like Lehman Brothers saw the value of their mortgage-backed securities plunge and experienced a credit crunch.
"The Lehman Brothers proprietary trading desk would own a lot of the names that they would then be forced to liquidate as they were getting the repo lines pulled, in what amounted to a huge margin call," Barbee told BI. "Some of the names traded down to underneath cash value per share."
"Being able to ride through periods of volatility where other stockholders might get washed out is a very important aspect of getting through those difficult times," Barbee added. "Sometimes the best opportunities become clearly available when you're feeling the worst about yourself."
Ultimately, staying steadfast paid off — the fund bounced back strong and was up 91% by the end of 2009.
For Barbee, the most rewarding part of the job has been the relationships he's built with clients. Some of his clients have been with him from the beginning and weathered the last two financial crises alongside the fund.
"To have the clients that decide to stay with you through difficult times, and then have it work out for everybody is is a really rewarding thing," Barbee said.