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Sheila Dang
Sheila Dang
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Submit Questions Now for An Upcoming Q&A With David Herro

February 18, 2015 | About:

One of Oakmark Fund’s portfolio managers, David Herro (Trades, Portfolio), will be joining GuruFocus for a Q&A session in the next few weeks. Have questions about Herro’s investing philosophy or international markets? Simply ask in the comments section below, and stay tuned for his answers.

About David

David Herro (Trades, Portfolio) has been a manager of the Oakmark International Fund since 1992, the Oakmark International Small Cap Fund since 1995, and the Oakmark Global Select Fund since 2006. He also serves as the chief investment officer for International Equities at Harris Associates.

In 2006, Herro was named Morningstar’s International Stock Fund Manager of the Year, and was later named the International Stock Fund Manager of the Decade for 2000-2009.

Herro’s top five holdings as of the fourth quarter are: Credit Suisse Group (XSWX:CSGN), BNP Paribas (XPAR:BNP), Cie Financiere Richemont (XSWX:CFR), Allianz (XTER:ALV), and Diamler AG (DAI.Germany).

Oakmark was formed in 1991 and seeks to identify companies that are priced at a significant discount to their underlying business value. The Oakmark funds usually hold less than 75 positions, so that the best investment ideas have a meaningful impact on the portfolio.

Performance and outlook

For the three months ended Dec. 31, the International Fund declined -0.45%, while the MSCI World Index ex. U.S. declined -3.69%. Since inception, the fund has had an average annual return of 10.39%, compared to the Index’s 6.22%.

According to the fourth-quarter letter, Daimler AG, a leading vehicle manufacturer, was the top contributor returning 9%. At the quarter’s end, 81% of assets were in Europe, 11% in Japan, and 4% in Australia.

In his market commentary for the quarter, Herro wrote the largest factor affecting returns has been the strengthening U.S. dollar. A second factor was the decline in oil prices, which has affected global markets in general.

Referencing a recent trip to China, Herro noted that crackdowns on corruption and reform of state-owned enterprises will bring about positive change for the Chinese economy. Two risks that remain are that shadow banking has destroyed more wealth and savings than previously believed, and the government’s tendency to manage what is good and bad consumption.

Don’t miss the opportunity to ask Herro your questions about the global markets. Check back soon for the full interview.

Please leave your questions in the comment area below.

About the author:

Sheila Dang
Editorial assistant at GuruFocus

Rating: 5.0/5 (1 vote)

Voters:

Comments

tpf65abbey
Tpf65abbey premium member - 4 years ago

How does David determine his margin of safety, what is the process that he goes through?

What factors or metrics does he look at in making a determination about management's ability?

In his recent letter, he spoke about macro factors, how much time does he ordinarily spend considering macro factors other than how they influence a specific investment?

nathandgregory
Nathandgregory - 4 years ago    Report SPAM

Question for David:

With current scientific knowledge of the effect of cognitive biases in decision making, what is the best reason and explanation for HUMAN stock selection vs. a very well programmed QUANT strategy?

jaikalro13
Jaikalro13 - 4 years ago    Report SPAM

Hi there ,

I have 2 small questions . :

1. how do you handle your investments when the amount your investing/trading is huge . for example : it is easy to handle a 20,000$ account , but when it become 20mil$ concerns of slippage are there . how do you deal with these factors ?

2. Do hedge funds day trade or strictly buy and hold or swing trade ?

Regards,

Jai

hoemengwee
Hoemengwee - 4 years ago    Report SPAM

Hi David,

Thanks for taking time to answer our questions. Questions from me as follow:

Will you be able to kindly share with us some tips and tricks on how do you/Oakmark handicap and think through the risks associated with a potential stock investment to get comfortable enough to pull the trigger and commit capital?

In researching a stock to invest for the long term, what are the research areas that you will be most uncomfortable leaving out? From your experience, which part of the research process is most prone to error and why is that so?

Do you have a minimum hurdle rate of ROIC that is required for companies to be shortlisted as potential long term investments? If yes, can kindly share with us what is that ROIC level and the rationale? If not, can you kindly enlighten us why or/and under what circumstances will you be willing to invest in low ROIC companies as long term investments?

What is the range of earnings/FCF multiple you are willing to pay for a company with limited growth prospects, say 2% to 4%, but reasonable return on capital (ROIC >= 10%) and stable earnings/FCF outlook over the next 5 years? What is your thought process in coming to that conclusion?

Inverting the above question on valuation, if you have to buy a stock at an expensive multiple like 20 times FCF/earnings and hold it for 5 years but have the power of specifying 5 to 10 fundamental criteria/attribute (e.g. earnings growth rates > 8%, not in mining sector etc) , be it qualitative or quantitative, that the company has to meet, what would these criteria be and why is that so?

mariuca
Mariuca premium member - 4 years ago

Apparently Buffet uses the long-term U.S. government bond as discount rate. There are times (like current times) when long-term interest rates are abnormaly low. Which is your discount rate currently (the minimum yield you would require to an investment today)? Does 6% look fine to you? Thanks so much.

Old_Street
Old_Street - 4 years ago    Report SPAM

Much respect David, thanks for doing this.

If you didn't have to worry about flows, maintaining AUM, or pleasing investors, how would your portfolio differ, if at all? Do your equity investments outside of your funds ever differ? If so, how?

Some investments you discuss publicly, some you don't. Besides reasons related to increasing or decreasing a position, what motivates you to discuss a company publicly versus staying silent?

gurufocus
Gurufocus premium member - 4 years ago

1. Your largest holding is Credit Suisse Group. Why do you like it? how do you think about the recent Swiss policy on their currency? What kind of impact will it have on the stock?

2. With Euro in decline, the return of Eurpean stocks for US investors is reduced by the currency decline. What is your view on that?

3. Why do you like Japanese car makers like Honda and Toyota?

gurufocus
Gurufocus premium member - 4 years ago


  1. How did you get into investing business and eventually become value investors?

  2. It seems that you focus on high quality business in your investing. Why do you like high quality companies? Will you even invest in low quality bargains? If yes, when?

  3. What are you biggest mistakes you had made with your investment?

  4. Do you short stocks? If not, what are the reasons other than you have unlimited loss potential?

  5. With the abundance of stocks and companies out there I was wondering if you could discuss the process you use to narrow it down in search of a value investment. Where do you get your ideas?

  6. What are your guiding principles to decide when to sell a stock?

  7. What is your outlook for today’s stock market? How much weight does the macro economy play in your investment decision?

  8. What does your daily schedule consist of?

  9. Do you believe in speaking to management of companies, or do you see them more as salespeople?

  10. With the decline of the West and rise of the East, how do you see the value in owning foreign equities particularly in the emerging markets?



Altantico
Altantico - 4 years ago    Report SPAM

Question for Mr. Herro, The international team at Harris Associates is run as almost an entirely different entity from the domestic group, why is that? What benefits and costs are there to not working together?

Globally speaking, from which management team do you learn the most listening?

Investing, personal or otherwise, what mistake provided the greatest lesson from which you learned?

hdonauser
Hdonauser premium member - 4 years ago

What is your rationale and valuation for your investment in Credit Suisse

vgm
Vgm - 4 years ago    Report SPAM

Thanks very much for taking our questions, David.

1. You recently sold all your Tesco holding. Looking back, what do you think you missed in assessing Tesco? What would you want to see the company do, in order to get comfortable again?

2. What's your thesis on the UK real estate play Countrywide? The stock has slumped during a period when its competitors (eg, Savills) seem to have have prospered in a growing UK market.

3. You hold a number of European and UK banks. That suggests you have confidence in the transparency of those institutions. What are your key criteria for assessing them as investments? What are your major concerns with them as investments?

4. Who is your all-time favorite investor, and why?

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