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Interview with Bill Nygren


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Brilliant illustration!


"When you have an industrial company that is growing, that growth tends to be represented by building new factories, which is capital expenditure. It goes on the balance sheet and is expensed over the 30-year life of the company. On the other hand, when a company like Alphabet invests for growth, it is done through their income statement, which depresses its current earnings. When someone new looks at Alphabet and they see it trading at 35x earnings, they would say that it’s almost twice the market multiple and does not obviously look like value. If you look deeper, you may find they are losing $5 a share per year on some bets they are making. But when you consider what the Google search engine is worth, it’s not generating just the amount of reported earnings; it’s generating $5 a share more. These are VC-like investments made in the company that, if made through a VC firm, would be showing up on the balance sheet as an investment and not going through their income statement."


I think @ScottMoneyHall said something like this before but in fewer words...

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"Foremost is the current valuation of a company, and the second most important is a management team that is focused solely on maximising per share value. Some of the best opportunities today are in very large financial companies selling at low book value, selling below P/Es with managements that have learnt that growth through shrinking shares outstanding can be just as valuable as topline growth. The last thing I want to invest in today is a financial services company, where the management is trying to grow by growing their loan book 10% a year. Companies that maximise per share value, no matter if that means they don’t grow or even if they shrink, will be great bets."


Bolded statement, True or False? (hint, the answer is true.)




Attachment from CSInvesting.com


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"There is a famous picture of Paul Tudor Jones with a piece of paper on his bulletin board that says ‘Losers average losers’. As value investors, we always want to believe that the stock is overreacting to bad news. A typical analyst report goes: This is a disappointing quarter but my value estimate fell only 5% while the stock fell 15%, so it’s a lot cheaper than what it was yesterday. This led us to do a lot of research into our own ideas. When the fundamentals start deviating from what our analysts had projected, averaging down on those names tend to not work. It made us alter how we thought a little bit more, which for us is certainly more valuable than learning what Warren Buffett eats for breakfast. What Warren does — buying great businesses that are run by good people, buying and holding, thinking about long term — is still the core of our investment approach. Nothing pleases me more than when somebody says that what we do at Oakmark is very similar to Buffett. At the same time, that doesn’t mean we can’t learn from people who do things very differently from what we do."




Good point...

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