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Announcement: Donald Yacktman to Answer GuruFocus Readers' Questions

March 24, 2011
Gordon Pape

gurufocus

308 followers
GuruFocus is excited to welcome gurus Don Yacktman, Steve Yacktman and Jason Subotky of Yacktman Asset Management Co. for a Q&A session with our readers.

Don Yacktman and his son, Brian Yacktman, had very interesting things to say when they participated in a similar Q&A with GuruFocus readers about 18 months ago. You can read the full transcript of that session here.

The Donald Yacktman Fund has had outstanding performance. It had the highest returns of all mutual funds that we follow, with a three-year cumulative return of 32% from 2008-2010. Donald Yacktman had a smaller loss in 2008, but he seized the opportunity in the market and bought into beaten down small caps to make an impressive gain of almost 60% in 2009.

The size of Donald Yacktman’s equity portfolio has more than tripled since 2009 due to his attractive rate of returns. He now manages over $3 billion.

Performance of The Yacktman Fund

Year Return (%) S&P500 (%) Excess Gain (%)
2010 12.64 15.1 -2.5
2009 59.31 26.5 32.8
2008 -26.05 -37 11.0
2007 3.39 5.61 -2.2
2006 15.95 15.79 0.2
5-Year Cumulative 59.1 12.2 46.9
2005 -1.3 4.91 -6.2
2004 9.93 12 -2.1
2003 33.03 28.7 4.3
2002 11.41 -22.1 33.5
2001 19.47 -11.9 31.4
10-Year Cumulative 205.6 16.4 189.2
2000 13.46 -9.1 22.6
1999 -16.9 21 -37.9


Yacktman’s investing philosophy is to combine the best features of “growth” and “value” by maintaining a disciplined investment strategy and buying growth companies at what he believes to be low prices. When he purchases stocks, he looks for companies that display the following three attributes: good business, shareholder-oriented management and low purchase price.

Each of Yacktman’s funds contains fewer stocks than most mutual funds—usually fewer than 25. They tend to invest more in their top choices than in other investments they find less attractive.

According to the Yacktman Fund website, Mr. Donald Yacktman is the President and Co-Chief Investment Officer of Yacktman Asset Management Co. He is also a Co-Manager for The Yacktman Funds. Prior to founding the firm in April, 1992, Mr. Yacktman served for ten years as the Senior Portfolio Manager of Selected Financial Services, Inc. During that time, he also served for nine years as the Portfolio Manager of the Selected American Shares mutual fund and was named Portfolio Manager of The Year by Morningstar in 1991. He joined Selected Financial Services, Inc. in 1982 from Stein Roe & Farnham where he had been a portfolio manager since 1968. Mr. Yacktman holds a B.S. Magna Cum Laude in economics from The University of Utah and an MBA with distinction from Harvard University.

Steve Yacktman is Vice President, Portfolio Manager and Co-Chief Investment Officer of Yacktman Asset Management Co. He is also Co-Manager of The Yacktman Funds. Jason Subotky is a Vice President, Portfolio Manager and Co-Manager of The Yacktman Funds. He joined the firm in August, 2001, having previously worked as a general partner at Peterschmidt Ventures and as a vice president at Goldman Sachs.

Read these articles to find out more about how they invest:

Donald Yacktman Buys CSCO, PEP, PG, NWSA, XOM, MSFT, SYY, APOL, Sells WLP, ANF, PBH

Donald Yacktman Expands to Europe

Donald Yacktman Top 5 Holdings: NWS, PEP, KO, MSFT, PG

You can ask questions to these accomplished investors by posting your questions in the User Comments area below. We will collect and send to Don, Steve and Jason.

About the author:

gurufocus
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 2.7/5 (23 votes)

Comments

dew_nay
Dew_nay - 3 years ago
Some of your larger stake are in beverage plays - PEP and KO. But PEP is the larger of the two. Do you think that PEP has a better upside and better managed than KO? Would like to know your thoughts on the two, which has a better future?
roberrabbit
Roberrabbit - 3 years ago
Question: Has the rapid size growth of the fund hampered your ability to invest? Do you ever think you might close the fund to new investors due to size?

Question for Stephen Yacktman: How much of the portfolio management role do you play now? And how long of a committment do you intend to make to running the fund after your father? Do you see managing the fund as a life's passion and a continuation of a family legacy or do you think you may want to do something else?

Hans Lokodi
cirros
Cirros premium member - 3 years ago


Question: What is the most important indicator you look at - free cash flow, ROIC , etc.?

Question: Have you thought of starti ng an asset allocation fund or a world allocation fund?

Thanks

Mark
LY
LY - 3 years ago
Hi Donald Yacktman,

Good day. I just join GuruFocus because my friend recommend me that GuruFocus is the right place to get the answer for my questions below.

Q1): What is your understanding about "Bird" and "Bush" in financial or accounting terms that hints by Mr. Warren Buffet. (Aesop concept).

Background (Q1):-

A1) Base on Aesop concept, "a girl in a convertible is worth five in the phone book" -- 2010 shareholder letter page 17.

A2)The oracle was Aesop and his enduring, though somewhat incomplete, investment insight was “a bird in the hand is worth two in the bush.” 2000 BRK shareholder letter page 12.

Q2) Is the intangible asset should be counted under as "Bird"/"Bush" category too ? if so, how to quantitify the intangible asset as true economic value ?

Background (Q2)

Many calculation of BV just ignore the Intangible asset (goodwill), which seem simple but too ignore some of the fact. Below is statement of Mr. Warren Buffet in BRK annual letter.

"The excess over tangible net worth of the implied value – $2.7 billion –was what we estimated GEICO’s “goodwill” to be worth at that time. That goodwill represented the economic value of the policyholders who were then doing business with GEICO" .

Sorry question about others topics from your article. Appreciate you may reply the questions. I hope GuruFocus be the right place to clear my doubt. Thanks.
ken_hoang
Ken_hoang - 3 years ago
Hi Donald Yacktman,

I am managing accounts for several friends. Here is some questions I would like to ask:

1. The company is trading at negative enterprise value sounds great opportunities for investment? Any risk buying in negative or very low enterprise value.

2. Where do you often look for your investment ideas?

Thanks

Anh
heisenman
Heisenman premium member - 3 years ago


Q: In the absence of "absolute" value with an acceptable "margin of safety" some managers opt to hold

higher levels of cash. Could you share your thoughts about this? And what were your flagship fund's

cash allocation at previous market peaks 1999 & 2007? Thanks
Victor Riesco
Victor Riesco - 3 years ago
Other than company fundamentals or macro economics, do you pay any attention to a stock´s technicals, relative strength, momentum or chart patterns?
M3Alpha
M3Alpha - 3 years ago
Mr Yacktman, thank you in advance for your time.

Q: Do you agree that M&A activity is driven primarily by fundamentals? In other words, inasmuch as fundamentals to not appear in the current environment to drive momentum (in my view, that is driven by price) do you feel that fundamental research, if done properly, can still lead an investor to excellent acquisition targets?

Thank you again.

Chip
davidbyrne
Davidbyrne - 3 years ago


Dear Donald,

You say that in your selection process you project a forward rate of rate & "in order to buy something, we require that it offer a minimum annual return".

The forward return consists of 3 components

1) normalized earnings estimate

2) inflation

3) growth

What problems do you typically encounter when estimating 1 & 3?

Do you use different estimates of inflation for different businesses?

Thank you,

Dave.
shb600
Shb600 premium member - 3 years ago
How do you calculate forward rate of return?
ea6bjoe
Ea6bjoe - 3 years ago
I am very interested in tech stocks.What stocks look to be the best for the next 12 months.
luishernadez
Luishernadez premium member - 3 years ago
Dear Donald,

I have a considerable position in APOL. I think the business is highly undervalued at current prices ($43) and was able to add in the deeps ($34). I think it is worth at least $60.

What is your opinion about this company? and what is your range for the intrinsic value?

Thanks,

Luis Hernandez
kka65
Kka65 - 3 years ago


Please what is the best way to Invest in Africa? Is it through and ETF or a Fund?

Thanks

Kofi
kcipperl
Kcipperl - 3 years ago
Has technology made you better or more efficient investors in any particluar ways and to what extent do you rely on excel modeling in your investment process?

It is said that "deliberate" practice is the key to becoming an expert in any field. In what ways do you undertake deliberate practice? What sort of media do you consume on a daily basis?

riccardobrun
Riccardobrun - 3 years ago
To Donald Yacktman

Dear Mr. Yacktman,

I' m helping 4 girlfrinds to invest their money , 8 millions in total.

What do you think ,the Euro will survive?

Thanks very much in advance.

Riccardo( Milano, Italy)
charliet
Charliet - 3 years ago
Your funds invested heavily in small caps in 2009 during the crash. Coming out of the crash the small caps performed best. How did you know to invest in the small caps during that period? Was it from looking at past crashes eg. 1974 or was it because they were the cheapest? Thanks
bannk01
Bannk01 - 3 years ago


I find the best way to stay grounded in this business is to read what rational, intelligent and seasoned veterans write: Warren Buffett, Bill Gross, Jeremy Grantham, Seth Klarman, John Hussman, David Rosenberg, Steve Romick and Robert Rodriguez of FPA, Bill Miller and of couse Don Yacktman. It can be overwhelming and confusing at times to read such a diverse range of views on managing money, but they all seem to have a common core belief - design a system that you believe in, and stick to it.

Q1) How and when did you find your system for managing money, and has it changed over the years?

Q2) Who do you read to stay grounded?

Thank You!
Yacktman Asset Management
Yacktman Asset Management - 3 years ago
Thank you for all of your questions so far.
Yacktman Asset Management
Yacktman Asset Management - 3 years ago


Some of your larger stake are in beverage plays - PEP and KO. But PEP is the larger of the two. Do you think that PEP has a better upside and better managed than KO? Would like to know your thoughts on the two, which has a better future?

We think both PepsiCo and Coca-Cola have bright futures. PepsiCo is currently a larger position for us because it is cheaper than Coca-Cola even though both companies have similar growth prospects over time. A significant portion of PepsiCo's value is derived from its dominant snack foods business, so there is less direct competition between the two companies than many think.
Paleface
Paleface premium member - 3 years ago
Dear Mr. Yachtman,

Congratulations on a stellar performance for the extremely difficult "double zero" decade. I recently sorted through the 10-year results of all 116 of the gurus listed here. You ended up in my top ten, so that's why I recognized your name.

My questions.

1. Is there any merit to the idea of using Put options instead of actually buying stocks? I am not talking about "get rich schemes" using options. But for serious long-term investments, as a sort of "insured" or "minimal risk" method of investing, as suggested in several books. I suspect this eliminates qualifying for the long-term tax rate... but other than that... can it work...?

2. Is it allowed for the beneficiary of an "irrevocable" trust to be given trading authorization by the trustee? I.e., if someone seems to be running his own "irrevocable" trust--albeit under the authorization and monitoring of the trustee--does this weaken the "irrevocable" nature of the trust? (Similar possibly to "piercing the corporate veil" for a corporation?)

Thank you.
dew_nay
Dew_nay - 3 years ago
Any thoughts as to Pepsi losing market share on its CSD position and ceding its long-held 2nd place position to Diet Coke? Are they losing focus on CSD and concentrated too much on the food business?



Some of your larger stake are in beverage plays - PEP and KO. But PEP is the larger of the two. Do you think that PEP has a better upside and better managed than KO? Would like to know your thoughts on the two, which has a better future?

We think both PepsiCo and Coca-Cola have bright futures. PepsiCo is currently a larger position for us because it is cheaper than Coca-Cola even though both companies have similar growth prospects over time. A significant portion of PepsiCo's value is derived from its dominant snack foods business, so there is less direct competition between the two companies than many think.
dew_nay
Dew_nay - 3 years ago
Mr. Yachtman,

With the dollar more likely to lose its value over time with the current fiscal and monetary path, especially compared to Asian currencies (with some at multi-year or even all-time highs, like the Sing Dollar, Malaysian Ringgit, New Taiwan Dollar, etc), would it be a better choice to allocate money in well-managed Asian companies (with operations focus in their home countries) than say, for example, Coca Cola or Johnson & Johnson, which generates more from international market than from the U.S.?
brianbiggalo
Brianbiggalo - 3 years ago


Hi Mr. Yacktman,

What do you consider the safest and cheapest company in your portfolio?

What company is considered the highest risk reward in your portfolio?

Thank You

arurao7
Arurao7 - 3 years ago
Hi,

Most of the stocks Yacktman funds (YACKX and YAFFX) own are companies listed in US. While many of those companies have good foreign exposure, are you not worried about a fall in the stock markets (listed in US)for various macro reasons (like loss in reserve currency status or a slow loss in confidence on US as a capitalist leader or long deleveraging cycle etc).

Japan is a great example of loss in their stock markets for two decades after a financial and housing crisis and a gradual deleveraging cycle. How do you protect your portfolio from being another Japan?

Thank you!
SirDuke
SirDuke - 3 years ago


Hi gents

I'm interested in the intricacies of your portfolio construction:

1. In the Yacktman Fund, do you consciously aim to have around 60% of the portfolio in the top 10 positions most of the time?

2. Once you've worked out risk-adjusted rates of return for each stock and ranked them, how exactly do you size positions? For example, just looking at say the top 5 ranked stocks, would you put 10%, 9%, 8%, 7% and 6% into them, or would you be more likely to bunch them bit more tightly say 9.0%, 8.5%, 8.0%, 7.5%, 7.0%? And if so why.

Thank you

ronaldkchan
Ronaldkchan - 3 years ago
Hi Mr. Yacktman. First off, congratulations on a stellar investment track record. And thanks for taking my questions.

Forward rate of return = FCF yield + Growth Rate + Inflation Rate

(1) Since the forward rate of return depends on a "constant multiple", how do you determine whether the multiple you are paying is reasonable? What if the multiple contracts?

(2) How do you account for a deceleration in growth in your forward rate of return? For example, a lot of the blue chips you currently favor could not grow perpetually at current growth rates, in my view, if only because their business becomes larger over time --- and certainly their balance sheets will if they retain earnings. In such a scenario, does the forward rate of return decline over time? How do you think about that?

(3) What is the minimum amount of forward rate yield premium that you'll accept for your best company - say KO - over the risk-free rate? What is the highest forward rate you have seen in a stock and how did it perform?

(4) Also, the 10Y Treasury is about 3-4% right now: do you look at the 3-4% as your risk free rate or do you try to adjust it, for example, upwards to 6% because we are currently in a low interest rate environment. Conversely, when the risk free rate is say over 10%, do you adjust it downwards when comparing forward rate yields against the risk free rate?

(5) Does the forward rate of return still work as a valuation metric if a company exhibits zero FCF yield (at least for the time being) but have growth rates that are like 15-20% or higher? Do you favor the FCF yield component more heavily than the growth rate component? When you think of the growth rate in your Forward Rate calculation, are you thinking of how quickly revenue grows or how quickly free cash flow grows?
dwildjhole
Dwildjhole - 3 years ago


Thank you for taking my question,

Total System Services (TSS) is a relatively unrecognized issue that doesn't get a lot of press from asset managers. I noticed that you were a buyer in 2010. How did you uncover this issue and what lead you to include it in the portfolio?

WIBruin
WIBruin - 3 years ago
I'm confused. Are they only answering one question?
gurufocus
Gurufocus premium member - 3 years ago
All the questions have been emailed to Yacktman Funds. We will publish the answers once we get back from them.
WIBruin
WIBruin - 3 years ago
Got it. Thanks.

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