Bill Nygren on Value Investing, the Attractiveness of Financials, and Learnings from Different Perspectives

Noted mutual fund manager Bill Nygren of the Oakmark Select fund thinks that long term equity investors can “expect a mid- to upper-single digit minimum return in the market” looking ahead, but notes that tilting one’s portfolio to large cap financials (Citigroup, Bank of American and JP Morgan are all in Nygren’s top 10 holdings) could help produce better returns than the market. Banks, Nygren believes, will benefit once interest rates increase. As rates rise, deposit rates should increase and interest charged by banks for loaning out money also should go up, both helping the earnings power of financials.

Nygren also discusses his investment process, which starts with taking a long term, fundamental view. “We’re looking to identify companies that today are selling at a large discount from what we believe they can be worth five to seven years from now. We’re looking for companies where we expect that per share value to grow over time. And we’re looking for companies where management is on the same side as shareholders,” he says. Nygren, who is considered a value manager, doesn’t shy away from buying stocks that have higher multiples if he thinks the stock trades below the company’s intrinsic value.

When asked about his biggest mistake in investing, Nygren offers some interesting insights. He said early in his career he only thought he could learn from studying other value investors. However, what he has realized is that you can learn from others who do things differently. He says “If you read about how someone thinks or approaches something completely different from the way you approach it, you can learn more. It can increase your confidence in how you’re doing things or you can say that’s a neat way of thinking and if I apply that to what I do it would be a slight change.”