Investment Guru, Oakmark’s Bill Nygren had a Q&A with Morningstar’s Liana Madura recently. He discussed the most misunderstood name in his portfolio, the reasoning behind his selection to purchase Apple (AAPL, Financial) in Oakmark Fund and not for oakmark Select. Also, he defined so-called value traps and how investing in one provided a learning experience for him. He also discussed his stance on the growing appeal of emerging markets and how he leverages international headwinds and tailwinds in purchasing holdings for the fund. Finally, Nygren commented on how he balances growth and value in terms of evaluating holdings for the portfolio.
Here is what he said about the Apple purchase:
You can read the full interview here.
Here is what he said about the Apple purchase:
You purchased Apple for the Oakmark Fund, but not for Oakmark Select. What was your thinking on that decision, and does it illustrate the different strategies you have for those two portfolios?
We timed our Oakmark purchase of Apple very well. We bought the stock in the first quarter of 2009 when it was selling in the $80s. Net of its cash, the P/E was about 10 times, and, unlike most analysts, we believed that sales of its higher-priced phones and computers were likely to hold up well during the downturn.
Like many stocks at the time, we thought Apple was selling for a little less than half of what it was worth. Had we the foresight then to see that our estimated earnings would triple and value would grow to nearly $500 per share within just two years, we would have certainly bought it in Select, as well.
Since Oakmark normally holds 50 to 60 stocks, and Select normally holds about 20, by definition Oakmark is going to own 30 to 40 stocks that Select doesn't. At least one of those performs so well that it makes us feel like idiots for not also owning it in Select.
At the time we bought Apple, every stock we owned in Select either sold at a larger discount to our estimated value than Apple did or had a large taxable gain and was performing very well fundamentally. As much as we got right in the Apple analysis, it is clear from our actions that we didn't forecast nearly as good a fundamental performance by Apple as the firm has achieved.
You can read the full interview here.
