Value investing drives everything we do at Oakmark. Each of our Funds abides by the same disciplined value investment philosophy and process.
Philosophy
We are value investors, which means that we invest in companies that we believe trade at a substantial discount to what we consider to be their true business value. We are patient
investors, not market timers. We believe that, over time, the price of a stock will rise to reflect the value of the underlying company. Every stock purchase
is viewed as if we were buying a piece of a business, not just a stock certificate. We believe that this approach to investing allows for significant investment
returns while reducing risk.
Process
Because our analysts and portfolio managers seek to identify undervalued companies, the investment process is not based on macro-economic factors, such as the performance of the economy or
the direction of interest rates. Nor is it based solely on technical factors, such as the performance of the stock market itself. Instead, we employ an intensive,
in-house research process to identify companies that meet our value criteria.
While some value investors may search only for stocks with low price-earnings ratios irrespective of the companies' underlying worth, Oakmark takes a more in-depth
approach. In evaluating potential investments, we focus on the following characteristics:
- A company's stock price and whether it is a significant discount to our estimate of underlying business value
- Free cash flows & intelligent investment of excess cash
- High level of manager ownership
From the universe of thousands of equity securities, our team generates investment ideas through a variety of methods, including the screening of database and
industry resources. If a security appears attractive, detailed quantitative and qualitative research follows. This meticulous process of identifying undervalued
stocks results in an "approved list" - typically made up of 125 to 150 securities.
The result is a collective effort at identifying the best values in the marketplace. From the list of approved stocks, each fund manager constructs
a focused portfolio, built stock-by-stock.
An important part of our investment philosophy and process is choosing companies where management has a significant ownership stake,
as we believe that stock ownership correctly aligns the interests of management with shareholders. At Oakmark, such a commitment is
an integral part of our business philosophy. First, our level of ownership underscores our belief in the long-term attractiveness of
the mutual funds that we manage. Second, we believe that when investment managers have a substantial amount of their personal wealth
tied up in their own funds, their interests are correctly aligned with those of fund shareholders. We believe our ownership of Fund
shares is among the highest of any advisory firm in the mutual fund industry and suggest that our alignment is strong. Third, in
difficult markets (like the current environment), when events may raise doubts among our investors about staying the investment
course, we believe that it is reassuring to our investors to know that the Fund managers themselves have remained constant in their
discipline and continue to have a meaningful sum invested alongside the rest of the Funds’ investors.
One of the key components of the Oakmark investment process is to invest in companies where managements’ interests are closely aligned
with shareholders’. We believe that this alignment is most frequently and effectively created by significant management stock ownership.
When management has a meaningful sum invested alongside other shareholders, the focus on performance and shareholder value is intensified.
Mutual fund investors can also wisely apply this same philosophy. Significant ownership of Fund shares -- not just by portfolio managers,
but also by all levels of employees at the Fund and its adviser (including analysts, senior management, trustees and others) -- reinforces
a higher standard of integrity, focus, and commitment. As of December 31, 2009, the employees of the Funds' adviser, Harris Associates L.P.,
the Funds' officers and trustees and their families have over $220 million invested in The Oakmark Funds. Although the difficult markets of
the last 18 months may have raised doubts among many of our investors about staying the investment course, you can be assured that we have
maintained a high level of Fund ownership throughout this period, remaining constant in our financial commitment and discipline. We hope
that our continuing financial commitment also signals to shareholders our strong belief that the Funds remain attractive investments for
the future.
To learn more about each of our Funds, click here for the The Oakmark Funds Overview.
Next: Why Oakmark?
