Bill Nygren’s appearance on Compound Insights offered a rare look at how one of the most respected value investors adapts to changing markets without losing sight of his core principles.
He began by reflecting on his early career, noting, “Ever since I first got interested in investing, which for me was back in high school, I was always drawn to a value approach… the idea of buying when things were on sale always resonated”.
That mindset remains, but Nygren acknowledged that the definition of value has shifted. “When I started my career I would say value investing was much more based on gaap statistics than it is today… but today, as the economy’s changed and it’s become much more an information-driven economy, I think the value of intangibles has made gaap investing somewhat problematic”.
Instead of clinging to old metrics, Harris Associates has evolved by capitalizing intangible investments: “We will take that growth spending that goes through the income statement and we’ll put it back on the balance sheet… and depreciate it over time”.
This pragmatic approach extends to portfolio construction. Rather than defining risk as deviation from benchmarks, Nygren explained, “To us risk is losing money that you can’t readily reearn. So when we size positions, we try to think about if we’re wrong, what’s a reasonable loss that we would be taking in that position”.
Such thinking ensures that leverage or weak balance sheets automatically warrant smaller allocations, even in concentrated portfolios.
On market conditions, Nygren urged investors to look beyond the S&P 500. “The S&P 500 has become the equivalent of a concentrated technology growth fund,” he said, warning that while multiples in the mid-20s may be justifiable for tech giants, “making a concentrated growth fund the core of your portfolio probably doesn’t make much sense”.
Instead, he highlighted opportunities in companies “under 14 times earnings today as there were 5 to 10 years ago when the S&P multiple was more like the Russell multiple”.
Capital allocation also defines long-term winners. Nygren praised companies that prioritize reinvestment when competitively advantaged, but warned of wasteful spending elsewhere.
On buybacks, he drew a sharp distinction: “We’re happy to see them return capital via repurchase… The problem with repurchase comes in when you hear management teams say, ‘We did everything else we could think of doing with capital. We had a little left over, so we bought stock back’”.
Perhaps most telling was his reminder about ignoring macro noise. He observed, “It’s ironic given underlying trends that are so strong for equities that investors spend so much time analyzing current events… Today’s issues… don’t look that intimidating when you look at the list that we’ve had the past 35 years and then realize the market’s up 30-fold”.
Nygren’s framework—value that accounts for intangibles, a risk lens focused on permanent loss, and a skepticism of index concentration—anchors his philosophy.
As he concluded, “When we buy a company, it’s because we think it’s selling at a meaningful discount to what we think it’ll be worth 5 to seven years from now”. For long-term investors, his perspective underscores the discipline of patience, adaptation, and conviction.
You can listen to the entire interview here:
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