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. When the management team has a
meaningful sum invested side-by-side with other shareholders, you should expect a higher standard of focus and commitment.
At Oakmark, such a commitment is an integral part of our business philosophy. We believe in "eating our own cooking" and
encourage employee ownership of the Funds. As of December 31, 2007, the employees of the Funds' adviser, Harris Associates L.P.,
the Funds' officers and trustees and their families have over $245 million invested
in The Oakmark Funds. This compares to an investment of $240 million in December 2006,
the last date for which we reported holdings. This increase represents a combination of
price appreciation and additional purchases.
To learn more about each of our Funds, click here for the The Oakmark Funds Overview.
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