Volatility In U.S. Equities Creates Opportunity

Volatility In U.S. Equities Creates Opportunity

In an interview with Natixis Investment Managers, Bill Nygren of Harris Associates and the Portfolio Manager of the Oakmark strategy, advised investors not to panic sell their equity investments in the current bear market. Nygren, who has long concentrated on seeking out undervalued U.S. stocks, believes the current environment has plenty of opportunities for stock picker’s.

Of course, it’s understandable why worried investors, who have already lost a lot of capital, would have concerns about the market going down even more, Nygren contends in the interview. But in nearly 80 years, there have been 7 bear markets, and if investors bought after the market dropped 20%, they would’ve made back roughly a third of their money over the following two years, on average. Nygren’s strategy with Oakmark “doesn’t depend on market timing,” and he stressed not relying on the news to determine your investments.

Given the current wide spread across P/E, that makes today’s market “truly a stock picker’s market,” Nygren maintains, because once the market comes out of this period, the spread will narrow. With the Oakmark strategy, Nygren has built a portfolio “that has a P/E of about 11 times”—well below the S&P 500, as well as the Russell Value Index. That, Nygren and his team believe, will “lead to a good performance from…Oakmark.” While some people position size with their portfolios, maintaining small positions so any mistakes don’t really affect the portfolio, Nygren takes the opposite approach, looking for high-quality name companies that will impact the portfolio the most. Given that approach, Nygren believes that “the biggest skill we bring to the table is stock selection.” They look for companies they believe are selling at a substantial discount now, but whose value will grow over time and outperform in 5 to 7 years. At Oakmark, they expect to hold a stock for at least 5 years, Nygren says, and that throughout that stretch of time, management decisions will have a significant impact to offer “the ultimate return to investors.”


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