Oakmark is the mutual fund family launched in 1991 by Harris Associates, the Chicago deep-value firm founded in 1976 (about $105bn AUM). Bill Nygren runs the flagship Oakmark Fund and David Herro the Oakmark International Fund, buying businesses at large discounts to intrinsic value and holding them like owners — publishing quarterly fund commentaries, market commentaries and insight articles.
This article argues value investing is still strong. Over the past decade, value strategies returned 10-11% annually, but tech stocks stole the spotlight. The S&P 500 has become a concentrated tech fund, which carries hidden risk. Using Netflix as an example, the author shows how to look beyond accounting numbers to estimate true business value. For ordinary investors, it means not blindly following index funds and considering adding value exposure to balance risk. Worth reading because it's data-driven and practical, not hype.
The valuation gap between value and growth remains at historically wide levels, with mean reversion favoring value stocks, but market concentration risk requires caution; the stance is [Cautious].
| Position | Direction | Author's Stance in One Sentence | Key Data |
|---|---|---|---|
| Value Stocks | Add | Value stocks purchased at a discount will benefit from mean reversion | Value strategy annualized 10–11% |
| MAG 7 | Hold & Observe | Extraordinary earnings growth has been priced in, but extrapolation assumptions carry extremely high risk | 2026 earnings are twice the forecast made seven years ago |
| S&P 500 | Not Explicitly Stated | Has become a tech-concentrated fund and cannot be viewed as a complete stock portfolio | Implied concentration has reached historically extreme levels |
The author first clarifies that his definition of value investing is not a simple screening based on price-to-book ratio, but rather an assessment of intrinsic value from the perspective of a business owner, intervening only when the stock price is about two-thirds below the estimated value, with a holding period typically of five to seven years. He writes: "value investing is trying to get a lot more than you pay for" — meaning: "Value investing is trying to get far more than what you pay for." This definition requires an understanding of a company's competitive position, cash flow characteristics, and industry evolution, and makes clear that "value and growth are not opposites; growth is an input to value," with the distinction being whether one is willing to pay a premium for predictions of the distant future.
The author uses data to refute the narrative that "value investing has failed": Over the past decade, value strategies have delivered annualized returns of roughly 10% to 11%, far exceeding inflation and sufficient to achieve most investment objectives. What truly needs explanation is the extreme performance of growth stocks. Taking the MAG 7 as an example, the article reviews the consensus market expectations for 2026 earnings in 2019 and compares them with the actual numbers to be reported, finding that 2026 earnings are on average double the forecasts made seven years earlier. This is not a simple case of P/E expansion, but rather a fundamental improvement that far exceeded anyone's expectations. The author emphasizes: "Extraordinary business performance should produce extraordinary stock performance." The market's directional judgment was correct, but the current issue is whether today's expectations are once again too low, or whether investors are paying an excessive price for extrapolation.
The article argues that the law of "trees don't grow to the sky" that value investing relies on has not broken down. Historically, high growth rates always attract competition, compress margins, and mean reversion is one of the most reliable forces in the market. However, the current market assumes that a few giant companies can sustain high growth from an enormous base—an extremely demanding assumption. The author specifically warns: The S&P 500 has evolved from a broadly diversified representation of the U.S. economy into a concentrated tech growth fund. He draws an analogy with the Australian market, where indexing implies a significant concentration in mining, and few investment advisors would consider it a complete equity portfolio. The U.S. market is now similar: holding the S&P 500 while also holding growth-style funds creates a serious implicit concentration risk.
The article offers three forward-looking judgments: First, the valuation gap between growth and value remains at historically wide extremes; if mean reversion takes effect, value stocks bought at a discount today will benefit. Second, investors should examine the actual risk exposure of their portfolios; increasing active value allocation is not about opposing innovation, but about ensuring the portfolio aligns with preset risk preferences. Third, future successful value managers must understand modern business models (e.g., the impact of AI on software economics, platform evolution) rather than fleeing innovation into old industries. Institutional perspective bias: The author is a holder of Oakmark positions, and the discussion aims to justify the value strategy and promote its own methodology. Readers should note the implicit marketing element, but the market data and concentration analysis provided have independent reference value.