The world’s greatest investors: Bill Nygren

Bill Nygren became interested in investing as a child after seeing stock quotes next to the sports pages. After studying accounting at the University of Minnesota and getting a Masters in Finance from the Wisconsin School of Business, he joined Northwestern Mutual. His frustration with their lack of interest in his value-driven ideas prompted a move to Harris Associates, where he became the firms’ director of research. In 1996 he was appointed lead manager of the Oakmark Select Fund, followed by the Oakmark Fund in 2000 and then finally the Oakmarket Global Select Fund in 2006.

What is his strategy?

Nygren is a value investor who looks for companies that he thinks are trading below what he considers to be their intrinsic value. To find out what this value is, he looks at their future cash flows and at what similar companies are selling for. He particularly focuses on companies that are experiencing short-term problems, but should have better long-term prospects – especially if the problem division is in a part of a company that only has a limited role in generating overall profits.

Did this work?

Nygren has a very strong track record. Since its foundation in 1996, Oakmark Select has returned 12.8% a year, compared with 8.1% for the S&P 500. The Oakmark fund has also done well, returning 9.6% a year compared with 4.7% for the US market. This means that $10,000 invested in the latter fund would now be worth $47,691, compared with $21,947 for the wider market. Finally, the Oakmark Global Select Fund has beaten the MSCI World Index by just over 3.3% a year since 2006.

What were his biggest successes?

While he was still director of research, Nygren persuaded Harris to buy cable TV stock Liberty Media on the basis of a detailed analysis that showed its stakes in various companies were worth triple their stated value. In the end Harris owned around 20% of the company, which eventually ended up being bought by up AT&T seven years later for 20 times the original investment. This works out a return of about 50% a year.

What lessons are there for investors?

Value investing isn’t just about searching for companies in the bargain bin – it’s also about buying great companies at good prices. If you look hard, you may be able to find companies whose assets haven’t been properly valued. Complicated financial instruments or holdings of shares in other companies can be used to inflate wealth, but they can also hide real value.