In a recent communication between GuruFocus and Bill Nygren, we had chance to learn his investment philosophy:
GuruFocus: Recently in an interview you were saying that you found buying opportunities of quality companies, they are sold at no premium. But these companies are also sold at no discount, they are sold at market average P/Es, which is rather high. Are there much of Margin of Safety in these buying opportunities?
Bill Nygren: I do think there is a margin of safety in purchasing a high quality business at a market P/E when you believe it deserves to sell at a multiple that is higher than the market. Effectively, if that company ends up being only average, then it was priced appropriately. I see that no differently than buying an average company at a discount. In that case, if it turns out the company is not average but is somewhat below average, then it, too, was priced appropriately. In both cases there is room for our analysis to be proven too optimistic without necessitating a decline in the stock price.
GuruFocus: There certainly were margin of safety when you were buying Home Depot at around 20. Is it a better choice now to stay patient and waiting for even better buying opportunities?
Bill Nygren: I agree that our recent purchases have less upside than did Home Depot around 20!
If we felt that all stocks were fully to over valued, then I believe it would be worth waiting in cash for better opportunities.
GuruFocus: Recently in an interview you were saying that you found buying opportunities of quality companies, they are sold at no premium. But these companies are also sold at no discount, they are sold at market average P/Es, which is rather high. Are there much of Margin of Safety in these buying opportunities?
Bill Nygren: I do think there is a margin of safety in purchasing a high quality business at a market P/E when you believe it deserves to sell at a multiple that is higher than the market. Effectively, if that company ends up being only average, then it was priced appropriately. I see that no differently than buying an average company at a discount. In that case, if it turns out the company is not average but is somewhat below average, then it, too, was priced appropriately. In both cases there is room for our analysis to be proven too optimistic without necessitating a decline in the stock price.
GuruFocus: There certainly were margin of safety when you were buying Home Depot at around 20. Is it a better choice now to stay patient and waiting for even better buying opportunities?
Bill Nygren: I agree that our recent purchases have less upside than did Home Depot around 20!
If we felt that all stocks were fully to over valued, then I believe it would be worth waiting in cash for better opportunities.
