Herro's Reasons for Optimism

Oakmark’s David Herro says that despite a tough year for his funds (which still have very strong long-term track records), he remains “extremely confident about the medium- and long-term future.”

Herro says in commentary on his firm’s web site that the biggest challenge in the market right now may be volatility, which is being driven mostly by political instability and also by some macroeconomic instability. He is heartened by valuations, which he says are cheap internationally, and especially cheap in Japan. “Global blue chips in general are selling at extremely attractive valuations, though investor interest remains soft,” he says.

European financials also present opportunities, Herro says, because they have been unfairly painted with a broad brush. “It is widely believed that all banks and financial institutions in Europe are under duress, when in fact we are able to find healthy, well-capitalized, profitable companies in this sector,” he says. “Certainly this isn’t the best of times, but companies are still making money while selling at well below half their book value. I think there are good opportunities for careful, long-term investors.”

Other reasons Herro is optimistic: Global economic growth remains solid despite the European problems, and investors in recent years have poured money into “safe” assets like Treasury bonds, which have outperformed. He thinks there will be some mean-reversion on that front given current valuations and yields of stocks.