Photograph by Kevin Serna
Growing up in St. Paul, Minn., veteran fund manager Bill Nygren regularly pored over the sports pages of the local newspaper, especially the baseball statistics.
Next to the sports pages was the business section, which contained stock quotes. He didn’t initially understand those numbers, but his father—who worked in the finance department at local company 3M—explained their meaning. “When I found out the numbers represented dollars, it became much more interesting,” he says.
Nygren remains an avid baseball fan, devoted to the Minnesota Twins and the Chicago Cubs, and he plays on the softball team of his firm, Harris Associates. But he does a lot more than just read stock quotes these days: Nygren has played a key role in running the $17 billion
(ticker: OAKMX) for more than two decades—and with stellar results.
As of July 2, the fund had a 15-year annual return of 11.3%, placing it in the top 2% of Morningstar’s large-cap value category. It carries an expense ratio of 0.91%, around average for the category.
It’s also near the top of its peer group based on one-, three-, five-, and 10-year returns. In late 2020, the fund was moved to the large-value category from large blend because of certain methodology changes, according to Morningstar.
Still, Nygren, 62, isn’t a traditional deep-value investor who focuses exclusively on dirt-cheap or distressed companies. His holdings include megatech companies like
(FB),
(NFLX), and
(GOOGL)—hardly typical value names—though, he notes, “We don’t want to pay more than two-thirds of what we think the business is currently worth.”
Nygren, who joined Harris Associates in 1983 with an undergraduate degree in accounting from the University of Minnesota and a master’s in finance from the University of Wisconsin, was director of research at the firm from 1990 to 1998. Nygren was named portfolio manager of the
fund (OAKLX) in 1996 and joined the Oakmark Fund in 2000 as a co-manager.
Now based in the Chicago area, he looks for companies that “have a combination of growth and yield to match the S&P 500.”
“This is much more a business-value approach, where you acknowledge that better businesses sell for higher prices than weaker businesses do,” Nygren says. “But still, everything is price-driven. No matter how good the company is, if we can’t find it available at our price, we will pass on it.”
One of the reasons he is more open to less traditional value stocks is his evolving view on generally accepted accounting principles, or GAAP. Nygren encountered this some 30 years ago as a young analyst. He researched cable television companies, some of which had negative net income.
Back then the cost of acquiring new subscribers was roughly $1,000 each. “That was why there was that disconnect,” he recalls. Those costs initially caused losses on the profit-and-loss statements, but led to more growth and profitability over time.
Long before he dealt with the nuances of accounting, Nygren had a hodgepodge of early influences, including investing books by the likes of Warren Buffett and John Templeton. Another early influence for his investing framework came from his mother, a discerning shopper.
“Instead of a typical weekly trip to a grocery store, we would be going to three different grocery stores,” he says. “I learned if grapes weren’t on sale this week, we would buy cherries instead and wait until grapes were on sale.”
The upshot from those shopping expeditions: “You could make your money go a lot farther.”
Nygren is doing just that with
(APA), an energy holding company. Its subsidiaries include Apache, an oil-and-gas exploration-and-production company. The stock’s enterprise value is roughly five times its estimated 2022 earnings before interest, taxes, depreciation, and amortization, or Ebitda, according to FactSet.
A key consideration, Nygren says, is that Apache has extensive exploration operations off the coast of Suriname in South America. As he sees it, “You are either paying a fair price for Apache’s existing operations, or you are paying a fair price for Suriname and you are getting the existing operations for free.”
Nygren, for all of his success, hasn’t nailed every call. One misstep occurred heading into the financial crisis of 2007 and 2008 when “we had been too heavily invested in financials.” Today, however, as many financials boast strong capital levels and sound balance sheets, the sector makes up the fund’s biggest allocation, at about 35% of the portfolio as of March 31.
The fund manager maintains that No. 5 holding
(C) is undervalued and trades at a steeper-than-usual discount to the broader market. The company, under relatively new CEO Jane Fraser, has an opportunity to unload some underperforming units and use the proceeds to buy back its undervalued stock, he says.
Note: Holdings are as of March 31. Returns through July 2; five- and 10-year returns are annualized.
Source: Morningstar; Oakmark Funds
A family vacation to Las Vegas in the late 1960s offered another important investing lesson. His father took him and his brother into a grocery store and put some nickels into a slot machine there, where it threw off more change. That ran counter to his father’s warning about gambling.
“I knew my dad was a smart guy, and I had this conflict to resolve in my head between this machine that was spitting out free money and my dad saying it was so stupid to gamble,” recalls Nygren. That eventually led to “a fascination with understanding how bets work,” he adds.
One bet that Nygren has plenty of faith in is Oakmark’s No. 6 holding, Facebook. The social-media giant’s stock recently traded at around 23 times FactSet’s 2022 consensus profit estimate of $15.29 a share. However, Nygren subtracts the company’s extensive cash position and makes adjustments for its other assets, like the popular messaging app WhatsApp.
By his calculations, “We are getting the nonearning assets, including the cash, for free,” he says. Spoken like a true eclectic value investor. B
Write to Lawrence C. Strauss at lawrence.strauss@barrons.com
