Bill Nygren: Idea Generation For Value Investors

Johnny HopkinsBill NygrenLeave a Comment

During his recent interview with Value Investing With Legends, Bill Nygren discusses idea generation for value investors. Here’s an excerpt from the interview:

Nygren: I think it would be an overstatement to say that it’s a systematic process. Our idea generation I think is very similar to a lot of other value investors.

We tend toward things that have been out of favor. Stocks that are down a lot attract interest of our analyst team. New management that we have prior records of with.

So a CEO maybe has sold the company that we’ve been familiar with and then that individual takes a job at another company, that would be a trigger for us to look.

We always ask the management teams that we respect who they think are their strong competitors, what changes they see going on in their industry.

That leads to a reasonably high percentage of our project list names. So I can’t tell you that there is a specific formula for what we will look at for our ideas.

I would say that one thing that’s changed over 40 years of evolution in this industry is probably more of our ideas today start with a qualitative reason to be interested in the stock.

Forty years ago it was almost always quantitative, and I would just say that as data has become more freely available to anyone and it’s very easy to access, the value of that data tends to decrease.

So I think the value investors that are stuck in just looking at the lowest 10% PE ratio or the lowest decile on price-to-book, that doesn’t create nearly as interesting a hunting ground as it did 40 years ago, when actually knowing which names were in the bottom decile was something that wasn’t at most people’s fingertips.

You can listen to the entire discussion here:

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