Bill Nygren: How To Find Doubles

In a recent discussion on CNBC, Bill Nygren of the Oakmark Fund detailed his disciplined investment approach, providing a clear window into the mind of a value manager.

His fund’s top holdings include Alphabet, Citigroup, and Warner Brothers Discovery. While acknowledging the strength of a holding like Alphabet, Nygren explained a core tenet of his strategy: trimming winners to manage risk.

“We think it’s important for risk control to not let the market take our ownership percentage way up,” he stated. “Alphabet has been about a 3% weighting in our portfolio… and had we not done anything, it would have gone up to about 5%. So we tend to trim into strength.”

This practice frees up capital for investments Nygren believes offer greater potential. He contrasted Alphabet’s prospects with other holdings, noting, “I think you can make a plausible case that in three years the stock prices could double, and I have a hard time doing that for Alphabet.”

This confidence in a double stems from a combination of share repurchases and earnings growth in companies trading at low multiples. Using General Motors as an example, he illustrated “they’ve taken out a third of their shares over the last three years. If over the next three years, their earnings don’t change and they take out 25% more of the share base, and the stock sells at nine times earnings, that would be double today’s price.”

He applied similar logic to Delta Airlines, which “sells at about 7 or 8 times earnings.” Nygren believes this is “too low a multiple for the leading airline company,” and with higher earnings and a slightly expanded multiple, “you could get a double. That just doesn’t seem heroic to us when you’re talking about a market that’s twice that.”

The conversation then turned to a broader structural issue. Nygren raised a profound point about the S&P 500, stating that for the first time, it has effectively become a non diversified index.

He explained the regulatory significance, noting that for a diversified mutual fund, “once your holdings that are each over 5% of the portfolio total to 25%, you can’t buy any more of those names. So right now, there’s no effective way for an active manager to have an overweight on those four names in the S&P 500.”

This creates a unique challenge, forcing a reevaluation of what benchmarks truly make sense for investors seeking diversified portfolios in a concentrated market.

You can watch the entire interview here: