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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.
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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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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.
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 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.
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 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 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.
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.
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.
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.
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.
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...
Corporations are generating more cash than they can reinvest, so dividends, buybacks and acquisitions are on the rise.
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.
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Date of first use: January 24, 2013.