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Bill Nygren on How Business and Investing Have Changed

GuruFocus.com
·3 min read

- By Stepan Lavrouk

Bill Nygren (Trades, Portfolio), a manager at Oakmark Funds, employs a diverse investing approach. If you are a regular GuruFocus reader, you may have seen the live presentation on investing that he did a few weeks ago. He was also recently interviewed for "Graham and Doddsville" - a newsletter put together by students at the Columbia Business School. Here are a few tips that Nygren had for aspiring investors.


You have to change with the times

Although he started off as a classic value investor in the Benjamin Graham mold, Nygren - like many other successful portfolio managers - has evolved his approach over the course of his career. He was asked to comment on how he perceives the market to have changed over the time that he has spent in finance. According to Nygren, investors have had to modify the classic value investing philosophy:


"If you look back to Graham's time, businesses were hard asset-based. Fixed assets on the balance sheet were depreciated and there was a reasonably good correlation between stock prices and book value because competitive advantages that didn't get represented on the balance sheet tended to be relatively temporary. A textile company that was first to invest in the newer, faster looms for a few years would have a competitive cost advantage. They would do really well, then their competitors would make the same investment and they were back to the same lousy commodity-based business they had always been in."



This began to change in the 1980s, when investors like Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) Warren Buffett (Trades, Portfolio) began to recognize the value of branding. Businesses that were selling at historically high multiples could still be good value plays because of their wide and growing moats. A traditional Graham-type capital allocator wouldn't have gone near such companies, preferring instead to look for businesses that were selling below book value.

And yet the best-performing corporations today tend to be the ones that have the strongest and most distinctive branding. Unlike a new type of loom, this is not a competitive advantage that can be easily replicated by a competitor. Coca-Cola (NYSE:KO) is not a commodity-based business - this should be obvious from the huge disparity between its valuation and that of a generic soda producer.

Nygren says that the rise of this branded consumerism is responsible for the shift in his own investing philosophy. At Oakmark, he still looks for underpriced businesses, but he doesn't care too much about book value - these days, the balance sheet does not tell you the whole story.

Disclosure: The author owns no stocks mentioned.

Read more here:

  • The Value Investor's Handbook: Why Investors Own Gold

  • Warren Buffett Is Not a Fan of Long-Duration Bonds?

  • David Einhorn Issues a 3rd-Quarter Update



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This article first appeared on GuruFocus.