• Read extended interviews with these fund managers here

Investors large and small were calling for their heads as assets in their mutual funds tumbled even faster than the market. Miller s once-vaunted Legg Mason Capital Management Value Trust fund dwindled from more than $16 billion to less than $5 billion as the crash decimated his holdings and panicky investors yanked money out of the fund. Today these same managers have something else in common: a sudden comeback in their flagship funds.

These funds aren t just up this year. They re way up, ahead of the market and of funds with similar investment strategies. Rogers, whose Ariel fund lost nearly half its value in 2008, is up 54 percent this year, beating the Standard & Poor s 500 stock index by about 29 percentage points. Now the Ariel Investments founder is getting stopped on the street not for a tongue-lashing but for kudos.

Veteran fund managers, of course, grow used to the market s ups and downs; there have been six bear markets since 1970 and more than 800 days in the past decade alone when the Dow Jones Industrial Average closed up or down more than 100 points. Value managers in particular pride themselves on their ability to take some hard knocks. After all, their investing philosophy calls for buying stocks no one else wants to touch, sometimes waiting years to reap the rewards. Still, this was different. Many were blindsided by the scope of the credit crisis and caught holding stocks that lost almost all their value, seemingly overnight. As a result, they fell to the bottom of their categories in performance, with Miller the best known of the bunch for his 15-year record of beating the S&P 500 losing 55 percent last year.

How did they pull through? Luck played a part. No one predicted last March, when the market was hitting new lows and many investors were pulling out, that the next eight months would see one of the sharpest rallies in market history. But perseverance also helped. Rather than change tactics, these managers kept at it, sometimes commiserating with each other in e-mails and phone calls or, in the case of Rogers and Miller, over a steak dinner at Gibsons in Chicago. Everyone wants a magic bullet, and it s good they didn t look for one, says Michael Breen, an analyst at fund researcher Morningstar. The worst thing is to change stripes in the midst of this.

Some investors are holding their applause. Even with this year s sharp rebound, the reputations of these managers have been tarnished, and many of their investors still haven t recovered from last year s losses. Other popular value funds like Dodge & Cox Stock and Longleaf Partners also fell sharply in 2008, and recent gains offer little comfort to advisers like Chuck Bender, a planner at The Financial Consulate in Hunt Valley, Md. Many value funds didn t do what we had looked for, and that is, protect us as the market fell, he says.

We tracked down Miller, Rogers and Weitz to see what they learned from the crash and what they re betting on now.

Bill Miller

Legg Mason Capital Management Value Trust
2008 return: 55%
2009 year-to-date return: 38%
Top holdings: Aetna, AES, Bank of America, Hewlett-Packard, UnitedHealth

Bill Miller s life doesn t exactly scream comeback. The veteran investor still carries the burden of the past two years, literally, having gained 25 pounds. His calendar is filled with weeks on the road trying to win back disgruntled clients. And he s still up late into the night, poring over academic papers and books about financial crises, searching for insight on where we go from here.

But Miller s Value Trust fund is back at least for now trouncing about 90 percent his peers this year. That s still not enough to make up for last year s fiasco, but it gives him some relief on other fronts: Aggrieved investors no longer berate him at Orioles baseball games, and his brother has stopped offering to send along angry comments that pop up on Google alerts. Miller s 15-year streak of beating the market ended in 2006, when he missed out on the bull market in energy stocks. Last year, of course, was even worse. And it wasn t just a matter of a few bad picks. Miller made a fundamental misjudgment about the financial crisis: He didn t think it would be so bad. When the world s financial system deteriorated to the brink of collapse, he was stuck with stocks worth just a fraction of what he paid for them. We relied too much on history, he says. You re always a captive of your past.

Today a person close to him describes the 59-year-old manager as intellectually humbled. Although his strategy still draws from areas as diverse as philosophy and behavioral finance, he s challenging his assumptions more these days. His portfolio bears little resemblance to what it looked like a year ago. Instead of making big bets on a small number of sectors, Value Trust now owns shares of companies in almost every area of the market, including Aetna, IBM and Sears Holdings. That should make the fund less prone to wild swings. But Miller has another reason for spreading his bets: He says that in the wake of the crash, he found bargains almost everywhere. He still sees bargains, partly because he believes the recovery is going to be a lot stronger than most investors are expecting.

John Rogers Jr.

Ariel fund
2008 return: 48%
2009 year-to-date return: 54%
Top holdings: Janus Capital Group, Hospira, Jones Lang LaSalle, Hewitt Associates, CB Richard Ellis

John Rogers Jr. was staying put. When consultants urged him to take less risk and diversify his holdings, the Chicago fund manager all but thumbed his nose at their advice. Instead of growing more cautious, he plowed more money into his favorite stocks, like real estate firm Jones Lang LaSalle and cruise giant Royal Caribbean. With a historic rally lighting a fire beneath his concentrated portfolio of just 32 stocks, the result was one of the best six months of Rogers s career: Ariel fund was up 35 percent in the second quarter and another 32 percent in the third quarter.

The 51-year-old fund manager didn t look so smart at the beginning of the year. The son of a civil-rights activist, he couldn t even get a break when he traveled to Washington for the inauguration of his friend Barack Obama Rogers s office kept calling with news about Ariel s tumbling portfolio. And it got worse from there. His poor performance led some of his longtime clients to yank their money out of his fund, and it was hard not to be offended. It s personal when people fire you, Rogers says. They are saying your life s work is not worth anything.

The doubters haven t exactly gone away. Some analysts question whether stocks, especially those in the consumer and financial-services sectors that Rogers favors, can keep powering ahead after months of gains. Rising tides lift all ships, says Tom Roseen, senior research analyst at Lipper. The question, he says, is what happens when the market slows down. Rogers says he isn t worried. People are focusing on what they have been through and aren t yet realizing the potential upside, he says. With companies slashing costs and investor expectations still dimmed, he says even modest revenue growth would generate significant gains in his holdings.

That doesn t mean Rogers hasn t learned a lesson or two. After getting hammered by his investments in acquisitive newspaper companies such as McClatchy Co. and Lee Enterprises, he s taking a much more skeptical view of takeovers and pressuring management to do the same. He has also decided to step up his visits with companies, hitting the road in recent months to meet with top executives of Gannett, Janus Capital Group and CB Richard Ellis. The result, he says, is more confidence in his picks. Even if the economy backtracks, Rogers says his holdings could take the heat, especially since many have cleaned up their balance sheets. And if they take another beating? We will do our homework again and be in there buying, he says.

Wally Weitz

Weitz Value
2008 return: 41%
2009 year-to-date return: 26%
Top holdings: Berkshire Hathaway, WellPoint, Redwood Trust, Dell, Microsoft

Wally Weitz may be having a good year, but that doesn t make him upbeat about the market s rebound. About one-fifth of his fund is sitting in cash, and he s in no rush to invest it. If the market falls, he reasons, there will be better opportunities in the future.

The plainspoken money manager, who favors plaid shirts and follows Warren Buffett, expects an uneven recovery, with investors experiencing wide mood swings between hope and disappointment. He says the result could be a volatile market that essentially goes sideways, possibly for years. For Weitz, that may mean more trading to lock in gains and capitalize on shorter-term opportunities. He s already taking that approach with education stocks like Apollo Group. At the same time, he s sticking with some longtime favorites, such as Buffett s Berkshire Hathaway.

Other longtime holdings were victims of the financial crisis. Two years ago Weitz began to reassess his case for his financial stocks as the housing downturn accelerated. The result: Countrywide Financial had to go, followed by mortgage giants Fannie Mae and Freddie Mac and insurer American International Group. It took almost nine months and many restless nights for Weitz to get rid of the forbidden four. Over the years we had been rewarded for sticking with dicey-looking situations, says Weitz, who says he made 20 times his money in Countrywide in the past. Maybe we were all a bit stubborn.

These days Weitz s team is doing more legwork, double-checking assumptions and digging deeper into the fine print of companies debt obligations. But some things didn t change, such as the fund s penchant for stocks trading below their true worth and his patience in holding them until they pay off. Indeed, as clients grilled Weitz on lessons learned in the crash, he realized that sidestepping the crisis completely would have meant having a mind-set and a way of operating that would have kept us from setting our records in the first place.

That kind of thinking strikes some investors as a bit stale, especially given today s fast-moving, unpredictable markets. Westport, Conn., financial planner Vern Hayden, who dumped mutual funds managed by Weitz and Miller in 2007, prefers funds with a more flexible, go-anywhere approach. Managers get trapped in their own style, he says. I understand they are trying to be consistent, but I don t think theirs is the best approach now. Weitz, who bought his first stock when he was 12 years old, has no intention of veering from his value-first method. But he knows it will take more than one good year to restore his reputation. Nobody is doing any victory dances, he says.