Brandes doesn't worry about short term returns, as long as the underlying value of the business hasn't changed. He cites Freddie Mac who he bought in at $100, saw it go to $30, and finally sold when it had turned around up to $160. He's seen many 50%+ drops in many good companies that he has purchased. But beware, if you bought into a too rosy outlook, a 50% drop might reflect the real value of a company!
He also doesn't subscribe to market timing, another common theme among value investors we've looked at. "As long as you're prepared for declines and don't sell into them, they can't hurt you," he says.
Brandes tends to put little emphasis on earnings, but instead focus on cash flows. This strategy served him well with Latin American telecom companies. In 1994, Telebras (Brazil) was one of his favourites. It had lines in ground, which were hurting earnings due to their depreciation. But it traded at only five times cash flow, as the company benefitted from having infrastructure already in the ground. There are numerous examples of other industries where earnings can look bad because of fixed cost purchases in the past...but those purchases that have already been made can now generate cash flows in excess of earnings as a result!