Bill Nygren manages the Oakmark Select Fund (OAKLX) portfolio, and has been doing so since the fund was started more than 10 years ago. His fund has significantly outperformed the S&P 500 over this period (more than twice the index performance!). I was reading through the
fund manager's quarterly commentary on fund performance - Nygren makes several important points about his (and the fund's) investing philosophy, and tries to explain his style to the investors. An important exercise, it allows the investor to understand how his money is being put to use. According to Nygren,
At Oakmark, we are long-term investors. We attempt to identify growing businesses that are managed to benefit their shareholders. We will purchase stock in those businesses only when priced substantially below our estimate of intrinsic value. After purchase, we patiently wait for the gap between stock price and intrinsic value to close.
Of course, one might argue that this is nothing but the classic definition of a value investor. So if Nygren is running a value fund, then what's so special if he is sticking to what he said would do. But then that's precisely what is important for me - to find out how closely is he following the fund's proposed plan. The sheer 'boring' nature of value investing can be excellently summed up as:
... successful long-term investing is much closer to "three yards and a cloud of dust" than it is to the West Coast offense!
In response to the stock market plunge of February 27 (when the stock market fell by 4%), Nygren clearly emphasizes his flair for value investing, sticking with basics in the face of panic:
Following that drop, I had several calls from reporters, all asking the same question: "The market is down 5%, what does that mean?" My answer, which not surprisingly wasn't used by any of them, was that five-year compound annual returns were now going to be 1% higher than they were before the market fell. That answer didn't convey quite the level of fear they wanted.
Nygren's commentary is a delightful read - as long as I believe that he can pick undervalued stocks correctly, I will hold the fund. I don't have to worry about his adherence to the value investing philosophy.
4 comments:
Doesn't OAKLX look fairly risky for the returns it has brought back over the recent past?
What made you get into the fund?
You are absolutely right - but although Nygren's track record over the last 3-4 years has been less than stellar, OAKLX has had a long term track record of outperforming the SP500.
Nygren has been at the helm throughout this period. I am investing in OAKLX on the basis of fund management and its ability to pick out beaten down value stocks and holding them to glory. When the world runs away from such stocks, the value manager goes for them, strong fundamentals based investing. The concentrated stock portfolio has with it the intrinsic risk of above average downside. But if the fund manager is good (like Nygren has shown himself to be), the upside of the concentrated portfolio seems worth it.
Long story short - I am investing in the fund because of the fund manager Bill Nygren, and I will sell if he quits the fund.
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