By Diya Gullapalli (WSJ)

After blowing up his funds in 2008 with disastrous financial picks, veteran value manager Wally Weitz has changed strategy and staged an impressive comeback this year.

Weitz Partners Value fund is up 14% while the Standard & Poor’s 500-stock index total return is still down about 2%. That is a big improvement from last year, when the fund fell 38%, much the same as the broad market. That followed an 8.5% drop in 2007.

The results illustrate how value managers are starting to dig out of their embarrassing losses. Helping value mavens like Mr. Weitz are the drastic changes they have made to their portfolios, after accepting that their approach has been wrong.

“I thought we had healthy humility two years ago, but we’ve been further humbled,” Mr. Weitz says.

Still to be seen is whether the improved results will be enough to lure investors back to the value fold. Value managers’ biggest selling point — that they can find cheap stocks that will rally in coming years — is lately open to question.

For now, the results are putting Weitz Partners Value far ahead of the average large value fund, which is up only one percentage point this year. But many of Mr. Weitz’s best-known value peers also are showing strong results, including Bill Miller’s Legg Mason Value Trust, up 10%, and John Rogers’s Ariel fund, up 13%. U.S. stock funds broadly have gained this year, especially since the market’s March low.

Mr. Weitz, based in Omaha, Neb., tried to distract himself with golf trips last year, but couldn’t escape soul-searching about his mistakes. “I and the other old-timers got a little too mechanical about finding someone who is temporarily a problem people are afraid of and taking the other side of it,” he says.

The “old-timers” he refers to include friends like Legg’s Mr. Miller. Mr. Weitz half-jokes that he plans to include in one of his investment reports a photo of the two of them riding horses with other prominent investors in Wyoming last year. The caption, he kids, would read: “Formerly smart money managers put out to pasture.”

Well-known for his plaid shirts and close relationship with that other prominent Omaha value investor, Warren Buffett, Mr. Weitz, 60 years old, says he has no plans of retiring as long as he “believes the value process really works.”

Mr. Weitz started Wallace R. Weitz & Co. in 1983 after spending 13 years researching stocks in New York and Omaha. His son, Drew Weitz, 29 years old, joined his father’s company in March after a stint at Ariel in Chicago.

Mr. Weitz’s changes are among the most significant in value land. He is cutting back on stocks like Washington Post Co. and Wal-Mart Stores Inc., which once represented some of his best thinking in media and retail.

Instead, he is buying oil stocks for the first time in decades. He also is snapping up shares of tech giant Google Inc., which is usually considered a quickly expanding “growth” stock. He thinks last year’s market crash left such stocks oversold. That has been a smart call so far — Google and another recent Weitz pick, oil stock XTO Energy Inc., are up 30% and 20%, respectively, this year.

Mr. Weitz has studied the energy area for years but stayed away because he worried the companies were too dependent on oil prices, which is a factor that is outside their control.

Now that the commodity bubble has burst, with energy prices remaining well off their peaks, he is diving in, also buying stock like ConocoPhillips. Mr. Weitz’s thinking is that energy prices falling below the cost of production has set the stage for gains.

In recent years, value gurus thought U.S. lenders were undervalued based on earnings. But it turned out these financial companies were overvalued because their earnings didn’t fully reflect their problems. So Mr. Weitz famously lost big on financial names like American International Group Inc., Fannie Mae and Countrywide Financial Corp. His firm has fallen to $2 billion in assets from a peak of $8 billion about five years ago.

Now he is treading more carefully with financials. He is mainly adding to longtime holdings, like mortgage investment firm Redwood Trust Inc., which with a 15% advance this year has panned out.

He is winning with hunting and fishing retailer Cabela’s Inc., which is up 120% this year thanks to big gun sales.