Course 508: Great Investors: Others in the Hall of Fame
Bill Nygren
In this course
1 Introduction
2 Charlie Munger
3 Bill Miller
4 Marty Whitman
5 Bill Nygren
6 Ralph Wanger
7 Bill Ruane
8 The Bottom Line

Bill Nygren is the manager of the Oakmark SelectOAKLXmutual fund. He joined Harris Associates, advisor to the Oakmark funds, in 1983. After a stint as director of research for Harris Associates for most of the 1990s, Nygren began managing the Select fund in early 2000, near the height of the technology bubble. Value investing is always tough, but even tougher when a bubble exists in stock prices. During these times, the undervalued stocks usually stay cheap for a long time, while the expensive "hot stocks" of the moment keep going up. When Nygren took over, Oakmark's investors were jumping ship trying to take advantage of ever-increasing Internet and other technology stocks. By sticking to his guns, however, Nygren eventually proved that his methodology of buying growing, but undervalued firms pays off in the long run.

Nygren buys stocks that are trading at discounts to their estimated private market values. To estimate a company's intrinsic value, Nygren and his colleagues use discounted cash-flow analysis and look at comparable transactions, among many other factors. When picking stocks, Nygren likes to look for companies he believes the market underappreciates, perhaps because of a short-term difficulty. In a speech given in early 2005, Nygren described his investing philosophy using a variation of the 80/20 rule, a strategy made famous by his former portfolio holding, Illinois Tool WorksITW. Nygren said he looks for stocks where 80% of the commentary about a company revolves around a piece of business that contributes only about 20% of the profits. When he finds a situation like this, it is likely the market is undervaluing the firm.

Such is the case with Nygren's largest holding (at the time of this writing), Washington MutualWM. Much of the news about WaMu is about the company's troubled mortgage business, while most of the firm's profits come from the highly profitable and growing retail banking business. Nygren believes that once the market realizes its misplaced focus, WaMu's stock should appreciate. Only time will tell if Nygren is correct, but as a long-term buy-and-hold investor, Nygren can wait.

Next: Ralph Wanger >>


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