In January, Oakmark Funds’ Bill Nygren gave a talk at Google on various aspects of value investing, the path of his career, and how the tech industry has evolved over time.
The hour-long interview takes many twists and turns, beginning with how Nygren first got interested in stocks. As a child, he says, he “liked numbers more than words” and took up baseball because he was fascinated with statistics. In the newspaper, Nygren recalls, the stock quotes were always listed next to the baseball stats. “When I found out they had to do with money,” he quips, “I got really interested in them.”
While both gambling and stock investing involve putting capital at risk, Nygren explains, he learned at a young age that in stock investing, the expected returns were positive. And, since he was taught the good sense of getting as much for his money as possible (“I went shopping with my mom, and if grapes were on sale she would buy more of them and less of something else,” he recalls), he developed an affinity for a value investment approach, for “being patient, and waiting to get more value than you were expending.”
He discusses how value investing has evolved in a macro sense and also within the context of the tech industry, citing the specific example of Netflix and how he passed on the stock ten years ago—he doesn’t consider it a mistake, but rather points out that the company “didn’t have the risk-reward profile we were looking for at the time.”
Nygren says, “As value investing has evolved, some of the more interesting opportunities are coming from businesses for which the P/E ratio does a really poor job of assigning value.” Simply bottom-feeding based on price isn’t the way to go, he says. “Simple, obvious stocks that look cheap deserve to be cheap,” he argues. He underscores the importance of digging into information to find other factors that could shed light on value—on the company’s financial statements, for example.
The notion that the tech sector is somehow riskier because it changes quickly, he says, is “an outdated idea.” All industries undergo rapid change, says Nygren. Tech companies are now of a scale that “2 kids in a garage aren’t going to invent something to displace them.”