During his recent interview with Value Investing With Legends, Bill Nygren discussed investing when the odds are in your favor. Here’s an excerpt from the interview:
Nygren: Typical position for us is something just short of 2%, we won’t buy a stock once it goes above three and we start trimming automatically if it goes above four.
Again, we believe that’s all consistent with an appropriate risk profile for an investor who says, I don’t want to think about this, I just want to buy a good fund, hold it long term, and I’ll check in with you in ten years and see how it did.
When we think about industry concentration, which is an issue because we think most banks are attractively priced today, we try to look at what our exposure is to various macro shocks, what percentage of our portfolio would get hit hard in a recession, how much net effect do we think higher interest rates have on the portfolio?
Because some of our names will benefit from higher rates, some will get hurt, and we try to manage risk more in what I would call like a common sense way than any rigorous quantitative program.
We don’t try to market time at all. I’ll go back to a gambling analogy. We know the market goes up about two thirds a year. If you put me in front of a roulette table that had 24 reds and twelve blacks on it instead of 18 of each, I’m not going to spend any time trying to guess which time the black is going to come up. I’m going to bet on red every time.
And I think one of the things I’m still fascinated by is how the media treats investors who try to time the market as if they’re doing something so intelligent. And to me, it’s the equivalent of somebody standing at a roulette wheel that’s biased in favor of red, and they stand there trying to guess when the black is going to come up. So we don’t market time.
You can listen to the entire interview here:
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