A recent Barron’s article shares insights from an interview with the Oakmark Select fund manager and value investor Bill Nygren regarding “the perils of value investing.”
Here are highlights from the interview:
- Nygren attributed his longevity (36 years at Oakmark) to learning the importance of sharing his investment philosophy with colleagues.
- He explained that his training was based “strongly in business valuation, where you try to identify what a business is worth, and you think about investing in it only if it’s available at a substantial discount to that number.”
- On financials, Nygren said, “The big banks today are much less risky than they were a decade ago. They have much more capital, relative to their asset base; their loan standards are tougher; and technology has given them a much greater competitive advantage.”
- Regarding his holdings in Alphabet and Netflix, Nygren explained that he differs from some value investors in his acknowledgement that “we have moved to more of an asset-light economy than the heavy industrial economy I grew up in. We are very willing to look at companies that look expensive on [traditional] metrics.” He explains, for example, that while Netflix is not cash-flow positive, the company is growing its subscriber base quickly and has pricing power.
- According to Nygren, “the biggest mistakes aren’t when you buy a stock and it goes down; it’s when a company fits your criteria and you still don’t invest in it.” He cites Apple as an example.