David Herro: Have Courage of Your Convictions
Jason Stipp: I’m Jason Stipp for Morningstar. It’s Beat the Market Weekon Morningstar.com, and today we’re going global with David Herro, manager on the Gold-rated Oakmark International as well as the Oakmark Global Select and Oakmark International Small-Cap funds. We’re going to learn a little bit about his process and how he has been able to be so successful in the international-investing world.
GrizzlyRock Value Partners was up 16.6% for the first quarter, compared to the S&P 500's 5.77% gain and the Russell 2000's 12.44% return. GrizzlyRock's long return was 22.3% gross, while its short return was -2.9% gross. Compared to the Russell 2000, the fund's long portfolio delivered alpha of 10.8%, while its short portfolio delivered alpha Read More
David, thanks for coming in today.
David Herro: Thank you for inviting me.
Stipp: Let’s start big picture about how you run your fund, the process that you use to select investments. What’s in? What’s out? How do you know that something is an investment you’re going to want to hold?
Herro: We take a very bottom-up approach. That is most, if not all, decision-making is based on the underlying attractiveness of the stocks themselves. So we’re looking at businesses, and we’re looking for companies that meet our specific value criteria, which is really the combination of two concepts: companies that are low in price but are high in quality, where price is determined by the cash flow streams–and we have to pay for those cash flow streams–and quality is determined by the returns that the management owns and the capital-allocative proficiency of that management team.
So those investment decisions are based on companies that meet those value criteria.
Stipp: High-quality companies, but the low-end price part means that the market must not be agreeing with your assessment somehow or there is some dislocation between the price and those underlying fundamentals? What are some of the risks you might say you’re taking on by buying something that, to you, looks underpriced, but to the market perhaps not so?
full transcript with David Herro here