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During the quarter, Win Murray and I had the opportunity to answer some questions for GuruFocus readers. What follows is an excerpted version of that Q&A.
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We are confident that our disciplined investment process has allowed us to identify businesses with attractive risk-adjusted return potential and that the gap between stock price and intrinsic value should close over time.
The Fund’s top contributor for the quarter was a multinational conglomerate, while the top detractor was a global automotive and truck manufacturer based in Germany.
We are encouraged that the Fund owns a portfolio of securities that trades at a substantial discount to our estimate of its intrinsic value. We expect that when “value” starts to matter more to market participants, the Oakmark Select Fund should strongly benefit.
We at Oakmark benefit from having investment analysts who are generalists. While other investment firms assign their analysts to specialize in just one industry, we believe that analysts who examine a wide breadth of companies provide far more value to the investment process than those who focus on one narrow industry.
During the quarter, we added three new positions to the portfolio.
The top contributor to the Fund’s performance was a manufacturer of sensors and connectors, while the largest detractor was a multinational conglomerate.
During the quarter, we added one new holding, which we believe is one of the highest quality oil and gas producers in the U.S.
At Oakmark, we don’t have an opinion about how equities will perform this year, if a recession will start or if the political parties will produce pro-growth candidates for 2020. As long-term investors, we don’t think it matters.
After a very difficult 2018 for the Oakmark Fund and the S&P 500, the market shrugged off many of the uncertainties surrounding interest rates, a trade war and slowing global growth during the first quarter of 2019.
The Fund’s top contributors for the quarter were a dominant retail bank in the U.K. and a U.S.-based oil and gas exploration and production company.
The Fund’s top contributor for the quarter was a commercial real estate services and investment firm, while a retail conglomerate was the largest detractor.
The 2018 performance of Oakmark wasn’t what any of us wanted or expected, but given the philosophy that has worked so well for Oakmark, the stocks that are in the portfolio today are the ones you should expect and want us to own.
We continue to believe that the underlying businesses in our portfolio are performing much better than their stock prices indicate, so we find these holdings even more attractively valued than they were prior to the fourth quarter.
The top contributor to the Fund’s performance was a U.K.-based insurance broker, while the largest detractor was a U.S.-based oil and gas exploration and production company.
The significant negative price movement in the fourth quarter afforded us opportunities to add four new companies to the portfolio – all of which are well regarded in their respective industries for the quality of their management teams and assets.
We apply the same process that created our long-term track record and we apply at least the same level of talent and effort to making our investment decisions. If you agree, and our portfolio positioning sounds logical to you, then consider joining us to take advantage of the recent weakness
While the Fund has outperformed the market over longer periods of time, we are not surprised to see shorter periods of underperformance along the way.
The Fund’s top contributor for the quarter was a U.K.-based global agricultural and construction equipment manufacturer, while a U.S.-based global producer of industrial, household and medical goods was the largest detractor.
Long-time shareholders understand that we invest in companies that we believe are selling at large discounts to their intrinsic values, and these stocks are often terribly out of favor with other investors. But if we’re right about these companies’ underlying values, then their cash flows should eventually win out, the market will come around to our view, and the stock prices will eventually rise to our estimate of value.
Since Oakmark’s 1991 inception, we have sought out investments whose economic value was not easily seen in simple GAAP metrics, such as net income and book value. As intangibles have grown in importance, so has the number of our holdings for which we adjust earnings to better reflect our view of intangible values.
We believe equities remain the most attractive asset class, and due to the increased number of undervalued companies with misunderstood intangible assets, our research team has produced an impressive number of new investment ideas.
The top contributor to the Fund’s quarterly performance was a global oil and gas exploration company, while the largest detractor was a company best known for its luxury passenger car business.
This quarter, we added a biotech company to the Fund.
As investors, probabilistic thinking is imperative for successful decision making, which is why – as evident in professional poker player turned author Annie Duke’s book Thinking in Bets – we have as much to learn from a great poker player as we do from a great investor.
While we remain focused on long-term business fundamentals as we evaluate potential investments, we don’t mind taking advantage of higher volatility to increase exposure to high-quality businesses at more attractive prices.
The Fund’s top contributor for the quarter was the second largest payment system in the U.S., while a leading global advertising company was the largest detractor.
We remain steadfast in our mission to focus on maximizing returns over a multi-year, not multi-month, timeframe.
During the quarter, Win Murray and I had the pleasure of answering some questions for GuruFocus. What follows is an excerpted version of that Q&A.
The strong fourth-quarter performance capped off a strong calendar year for the Fund, and we are pleased to report that the Fund hit another all-time high adjusted NAV for the sixth quarter in a row.
The top contributor to the Fund’s quarterly performance was a global agricultural and construction equipment manufacturer, while the largest detractor was a global producer of industrial, household and medical foods.
This quarter, we added the world’s largest manufacturer of automotive seating and a telecommunications company to the Fund.
We are nine years into an economic and stock market recovery and P/E ratios are elevated somewhat beyond historic averages. As value investors, we believe our portfolios benefit from owning stocks in the overlapping area between growth and value, which is why we are mindful of the shortcomings of using a P/E ratio alone to define value.
As value investors, we patiently wait for the gap between a company’s stock price and our estimate of intrinsic value to close, and over the past 12 months, the gaps have narrowed.
The Fund’s top contributor for the quarter was a global vehicle manufacturer, while a global producer of industrial, household and medical goods was the largest detractor.
While there were no new names added to the portfolio this quarter, we are pleased to report the Fund ended the quarter at a new all-time high NAV.
During the quarter, I had the opportunity to answer some questions for Value Investor Insight. What follows is an excerpted version of that Q&A.
We are pleased to report that this was the fourth quarter in a row in which the Oakmark Fund hit an all-time high adjusted NAV.
The top contributor to the Fund’s quarterly performance was a global agricultural and construction equipment manufacturer, while the largest detractor was a global producer of industrial, household and medical goods.
This quarter, we added an oilfield services company to the Fund.
I often get asked the question, “What do you think makes a good investment analyst?” Outside of the criteria used by many investment firms, we at Oakmark look for three unique characteristics in all hires.
The Fund’s top contributor for the quarter was a Swiss luxury goods company, while the largest detractor was a U.S.-based global oil and gas exploration company.
While there were no new names added to the portfolio this quarter, we increased our positions in our existing holdings that we felt were still trading at a substantial discount to fair value.
Since the founding of our flagship Oakmark Fund 25 years ago, we have striven to stand out from competitors by focusing on being the type of mutual fund that we ourselves would want to be invested in.
We are very pleased that recent performance showed a substantial reversal from the results reported to you a year ago following the fourth quarter of 2015.
The largest contributor to the Fund performance this quarter was a U.S. bank, while a French food-products corporation was the Fund’s largest detractor.
During the quarter we added one new position to the Fund: a financial services company.
With October upon us and many Chicagoans’ minds fixated on the Cubs’ post-season play, I couldn’t help but consider how short the average investor’s time frame has become—effectively investing for just the World Series rather than the longer regular season.
This quarter marks the 25th anniversary of the Oakmark Fund, and we are proud of our long-term results and pleased to mark the occasion with an all-time high adjusted NAV at quarter end.
The top contributor to the Fund’s quarterly performance was a worldwide leader in cement and other building materials, while a global producer of industrial, aviation and medical goods was the Fund’s largest detractor.
In the third quarter, we added a large casino operator to the portfolio.
We at Oakmark are confident in the advantages of active management, and believe that if you are a middleman who can be replicated by a computer algorithm, in asset management or elsewhere, you’re in trouble.
At Oakmark, we evaluate businesses by summing the present value of their future cash flows, which we believe will only be minimally affected by U.K.’s recent vote to leave the EU.
The Fund’s top contributor for the quarter was a U.S.-based global oil and gas exploration company, while the largest detractor was a Swiss financial services group.
During the quarter we added two new positions to the Fund: a business-oriented social networking service and a well-known motorcycle manufacturer.
During the quarter, I had the opportunity to answer some questions for The Motley Fool. What follows is an excerpted version of that Q&A.
We remain focused on assessing the long-term underlying value of businesses, which we believe are much less volatile than stock prices.
The largest contributor to Fund performance this quarter was a U.S. software company, while a Swiss financial services company was the largest detractor to performance.
We remain confident in our financial holdings and the same process that has delivered success since the Fund’s inception.
We believe that our Funds are positioned to continue delivering on their dual long-term goals of growing investor capital and performing better than index funds.
As portfolio managers and large shareholders of the Fund, we’re not satisfied with losses, but we remain confident in our time-tested philosophy, investment process and research team.
The top contributor to the Fund’s quarterly performance was a leading Internet search engine, while a Swiss financial services company was the Fund’s largest detractor.
While the Fund’s full-year performance wasn’t as strong as we would’ve liked, it’s worth noting that our pre-tax and after-tax returns were very similar, despite realizing large gains throughout the year.
When we invest in undervalued businesses run by CEOs with good win-loss records, we believe the foundation is put in place for long-term success.
We remain confident that our focus on business value and our extended investment time horizon will position the Fund for favorable results over longer periods of time.
The Fund’s top contributor for the quarter was a U.S. technology company, while the largest detractor was a U.S.-based oil and gas exploration and production company.
We have been through difficult periods before and remain thoroughly committed to the same investment process that has delivered success since the Fund’s inception.
During the quarter I had the opportunity to answer some questions from readers of GuruFocus. What follows is an excerpted version of that Q&A.
We continue to feel that financial securities are among the most attractive segments in the market.
The largest contributor to Fund performance this quarter was a U.S. technology company, while a South Korean electronics company was the largest detractor to performance.
During the quarter we added an agricultural company and an automobile manufacturer to the Fund.
We don’t see any reason that the investing environment we face today is materially different than what we’ve faced throughout our history.
We feel the financials and energy sectors remain undervalued, and the Oakmark Fund added to several positions in these sectors during the quarter.
The top contributor to the Fund’s quarterly performance was a U.S.-based online retailer, while a bank in the U.S. was the Fund’s largest detractor.
We remain steadfast in our commitment to the same investment process that has delivered success since the Fund’s inception.
Unlike much of the mutual fund industry, Oakmark is focused on maximizing after-tax return.
As we have written in the past, we believe the financial and information technology sectors are among the most attractive, and investments in these areas represent over half of the Fund’s equity holdings.
The top contributor for the quarter was a U.S.-based technology company, and the largest detractor was a U.S.-based oil and gas exploration and production company.
As the price of many energy-related equities has fallen, their attractiveness has increased.
I’d like to take the opportunity to discuss how we at Oakmark analyze acquisition proposals.
The information technology and financial services sectors are still among the most attractive sectors of the market.
A semiconductor manufacturer was the Fund’s top contributor in the quarter, while the largest detractor from the quarterly return was a manufacturer of agricultural and construction equipment.
It goes without saying that we generally welcome takeover activity in any of our holdings.
To us, buying great businesses at average prices is just as much value investing as is buying average businesses at great prices.
Our great team of research analysts continues to find attractively valued companies to add to the portfolio. Over the past two quarters, we have added seven new companies to the Fund.
The Fund’s largest contributor this quarter was a U.S. technology company, and the largest detractor was a U.S. financial services firm.
We continue to believe that universal banks are significantly undervalued relative to their normalized earnings power.
At Oakmark, our professionals learn quickly that the team is more important than the individual.
Stocks certainly aren’t as cheap as they were a year ago, but we are still finding attractive companies to add to the portfolio.
A U.S. financial services company was the top contributor for the quarter, and a Japanese brokerage company was the largest detractor.
At Oakmark, active management means more than just stock selection – it also involves maximizing after-tax returns and managing risk in special situations.
Our message is the same as it almost always is – don’t let current events keep you from following your long-term financial plan.
Our portfolio has been heavily invested in financial services, economically sensitive industrials and information technology.
Japan’s second-largest broker was the largest contributor for the year, and the largest detractor was a Japan-based consumer imaging company.
Looking ahead, we continue to see attractively priced investment opportunities in financials, large cap technology, automotive cyclicals, and the energy sector.
During the quarter I had the opportunity to answer some questions from readers of GuruFocus. Following is an excerpt of that Q&A.
We still found the financials and information technology sectors to be attractively valued for the quarter just ended.
Once again, a Japanese brokerage and a global auto manufactuer led the quarter’s contributors. The top detractor was a Canadian-based oil company.
Our strong fiscal-year results were primarily due to stock selection and our relatively large weighting in more economically sensitive sectors such as consumer discretionary and financials.
A little over a month ago – May 21, to be exact – the stock market was on track for another great quarter....
Our portfolio has been heavily invested in financial services, technology and economically sensitive stocks. Those sectors performed well in the quarter, and not surprisingly, our best performers were companies in those industries.
A Japanese brokerage and a global auto manufactuer led the quarter’s contributors while a Japan-based professional and consumer solutions company was the top detractor.
Our portfolio has been heavily invested in financial services, technology and economically sensitive stocks. Those sectors performed well in the quarter...
Corporations are generating more cash than they can reinvest, so dividends, buybacks and acquisitions are on the rise.
Despite strong market gains in the first quarter of 2013, we believe stocks remain moderately undervalued relative to their own history and extremely undervalued versus bonds.
A U.S. computer maker and a Japanese brokerage led the quarter’s contributors, while a Swiss freight company and a Canadian oil producer were top detractors.
In this past quarter, stocks of stable businesses with high dividends tended to be better performers. This trend does not appear to be supported by stock valuations, but rather by investors searching for income who found these stocks to be cheaper than bonds.
The long-term success of Oakmark's investment culture depends on training the next generation of leaders.
Bill answers questions about the role of macro for bottom-up investors, future financial regulation and market volatility.
Being a big fan of Jack Schwager’s Wizard series of investment books, I eagerly read his newest book, Hedge Fund Market Wizards, and was not disappointed.
2012 is off to a great start for stock market investors. The S&P 500 was up 13% for the quarter. In just one quarter the S&P 500 returned more than a seven-year U.S. government bond would have returned over its entire lifetime.
Something crazy happened the morning of December 13. When I turned on CNBC, the S&P futures were exactly unchanged from their December 12 close. Dead flat. Zero movement. In a normal year, no change would be common or even expected. But in 2011, especially during the second half of the year, days frequently started with stock prices at very different levels from where they were just hours earlier. It became the norm for pre-market prices to be up or down 1% or 2%. Late in the year, S&P 500 volatility exceeded 30%, more than three times the volatility levels of five years ago.
When I studied stock market history in college, I used to think that it would have been so easy to be an investor in the 1950s. The math behind dividend discount models hadn’t yet been widely accepted, and most investors thought that, because equities were riskier than bonds, they needed to have higher yields. Of course, we have learned that equities require a higher expected return than bonds, but that expected growth is a very large component of that return. When equities yield less than bonds, they still usually have the higher expected returns. If only we could again have the opportunity they had in the ’50s! Be careful what you wish for.
Every week seems to bring a new story about how much money is flowing into mutual funds. If we stopped after the headlines, we might wrongly conclude that mutual fund investors are once again positive about the stock market. And, because mutual fund inflows have historically been a contrary indicator, this trend might worry investors.
I enjoy reading books about successful organizations. I like to see how their methods overlap with ours and the companies we have investments in. I also like seeing what they do differently than we do to get ideas for how we can improve. While we have learned some things from studying other successful investment firms, I find we learn more from comparisons to non-investment companies. And given my non-work interests, I especially enjoy the comparisons to successful sports organizations.
For more historic commentaries, available in the Oakmark Quarterly Reports, click here.
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Date of first use: January 24, 2013.