Nygren: Don't Avoid Stocks

In a new interview with Minyanville.com, Oakmark fund manager Bill Nygren — whose fund is up 50% in the past year and ahead of the S&P 500 over the past 3, 5, and 10 years — says investors need to get back to basics. And for most, that means returning to stocks.

“The thoughtful investor today, rather than thinking about how they missed the rally or remaining afraid of another lost decade, needs to get back to basics,” Nygren said in a wide-ranging interview. “They need to think about what target equity allocation makes sense for them. For most investors, equities are still the asset class of choice. They should still have long-term returns exceeding fixed-income returns. Most investors today are still beneath their target allocations.”

Nygren says that with corporate earnings rebounding and P/E ratios starting out at reasonable levels, the biggest risks to investors now aren’t company-specific — the biggest risk involves the anti-business tone coming from Washington.

Nygren also discusses his fund strategy, saying that he focuses on three factors: price, per-share growth, and management. On price he says, “Ballpark, we like to pay $0.60 on the dollar for what we think a business is worth today. When the price gets to $0.90, we sell it. Buying at a discount lowers the cost of your mistakes and it increases the returns, when you analyze the fundamentals correctly.”

In terms of growth, Nygren says “we want businesses that are growing per share value at least as rapidly as the market is.” And when it comes to management, he looks for teams that are “incentivized to maximize long-term per share business value. We like to avoid situations where management incentive packages are based on growing the sales or income of the company. We like the metrics that are tied more to per share value or return on capital.”

Nygren also talks about proposed financial regulations coming from the Obama Administration, and what he learned from his fund’s losses in the second half of 2007 and 2008.

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