Herro on Strategy, and Why He Likes Japan

Top fund manager David Herro says discipline and longer-term thinking are keys to successful investing. “You have to be grounded, first of all,” Herro tells WealthTrack’s Consuelo Mack. “You have to have a very sound investment philosophy from which to operate from. And number two, and perhaps most importantly, is you have to apply discipline. All too often people might have a sound philosophy, and then the moment that philosophy hits a little adversity, they abandon it, and they run.” Herro also says his investment approach focuses on finding cheap stocks of quality firms. He says he looks for cheapness by comparing the amount of free cash a business generates to its enterprise value; he says quality firms are those that are “able to achieve satisfactory rates of return over the medium and long-term” and have “a management team that proactively, and in a successful manner allocates the free cash which that business generates.” Herro says his long-term, disciplined approach has him focusing on some unloved areas right now: Japanese companies, consumer staples, and even some financials.