Great interview with Bill Nygren and Win Murray from Oakmark Capital in last month’s Value Investor Insight Newsletter. On the subject of passive vs active investing Nygren says, “I think it’s ironic that an increase in the number of dollars invested without thought as to where value is and isn’t would make the game impossibly difficult for those of us who do think about these things.”
What’s also notable is Nygren’s private-equity approach to valuing public-equity investments.
Here’s an excerpt from that article:
VII: We’re assuming what you’re looking for – stocks trading at discounts to your estimate of value, management teams aligned with shareholders, and value that grows over time – hasn’t changed. True?
Bill Nygren: There hasn’t been any significant change. From the time we started Oakmark Fund more than 25 years ago those have been the criteria we’ve used to find companies in which to invest. We still believe they’re the three most important things on which to focus.
If you’re missing any of those, you start to struggle with the investment idea. If the name isn’t cheap, it doesn’t even qualify as a value investment. If the value isn’t growing, then you’ve got a clock that’s ticking against you. And if management isn’t focused on maximizing long-term per-share value, then no matter how good your analysis is of the business, the decisions being made can disrupt the rising path of value you’d otherwise see in the static business. It’s only when all three of those things are present – discount to the value, value that’s growing and management trying to maximize per-share value – that we have the confidence to make an investment.
Private-equity firms generally look for companies they believe investors will perceive differently five to seven years from now because of changes they can put in place. Investors today might be ignoring hidden assets or are overly focusing on a temporary problem, but a private-equity approach focuses on how business values could change over several years. That’s a very different way of thinking from most investors who are trying to outguess each other on next quarter’s or next year’s earnings. We try to apply a private-equity approach to public-equity investing.
You can read the full interview here.
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