During his recent interview with FinChat, renowned value investor Bill Nygren reflected on mistakes and lessons learned over his career. His insights serve as a compelling reminder of the delicate balance between conviction and caution in investing.
“You know, it’s funny, there’s so many mistakes. If you define the mistake as you bought something that went down,” Nygren remarked. This simple yet profound statement underscores a fundamental truth—investing is inherently fraught with risk, and not every decision will yield success.
Nygren candidly admitted that Oakmark was heavily invested in banks leading up to the global financial crisis (GFC), underestimating the credit risks embedded in their balance sheets. The firm, like many others, took undue comfort in the assumption that home prices wouldn’t fall, a costly oversight.
One of the most striking admissions in Nygren’s interview was regarding Apple—a stock that, despite being a clear value play, was not given the weight it deserved in Oakmark’s portfolio.
“The biggest mistake I think would probably be Apple,” he stated. Purchased in 2009 at a discounted price-to-earnings ratio relative to the market, the company had all the hallmarks of a strong long-term investment. “We were all Apple customers, loved their phones, thought that switching costs were very high.”
Yet, Oakmark’s initial investment in Apple was too conservative. “We put Apple into our portfolio at a small position size partly because we were so concerned about how are we going to explain this great growth stock in a portfolio that people expect to see General Motors and Delta,” Nygren explained.
The irony is stark—investors readily accept traditional value plays, but when a company like Apple enters a value portfolio, it raises eyebrows.
Oakmark held Apple for 12 years, during which its stock price skyrocketed thirtyfold. The lesson? Position sizing matters. “Had it been a 2% position going in instead of one, [it] would make up for 30 mistakes of getting wiped out on companies that ended up being real duds.”
Nygren’s retrospective on Apple was not simply an admission of a missed opportunity but a catalyst for change. He noted that Oakmark has since applied this lesson to investments in other tech giants.
“We bought Google just two years after we bought Alphabet… It’s still one of our largest holdings. And we did not shy away at all during that time period from a value investor having Alphabet as its largest position.”
Nygren’s reflections reveal a broader shift in value investing. Traditional valuation metrics, such as price-to-book and price-to-earnings ratios, fail to fully capture the value of companies whose primary assets are intangible. “I think we’ve been leaders in the value investment industry for buying companies where intangibles have become their largest asset,” he stated. His words serve as a call to action for investors: adapt or risk being left behind.
In the end, Nygren’s experience serves as a powerful reminder that even seasoned investors make mistakes. But what separates the great from the good is their ability to learn, evolve, and recognize value where others hesitate. The lesson from Apple wasn’t just about buying the right stock—it was about having the conviction to size it appropriately and break free from outdated notions of what a value investment should look like.
You can watch the entire interview here:
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