David Herro Market Commentary | 2Q15

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.

Bill Nygren、David Herro · 1991 · 美国芝加哥Deep value / contrarian long-term

Theme and Background

This chapter discusses the short-term impact of global macro events (the Greek debt impasse, China's economic weakness) on stock markets, and how value investing can address such irrational volatility. The report notes that despite low market returns caused by the Greek crisis and China's slowdown, growth expectations for Europe have actually been revised upward, while India's economy is accelerating, painting a picture that is not entirely pessimistic.

Core Thesis

The author's core investment argument is: Short-term price fluctuations are unrelated to a company's intrinsic value, and value investors should hold or increase their positions in assets when prices fall irrationally due to macro events. Counterintuitive judgments include: against the backdrop of a worsening Greek crisis (potential default or exit from the eurozone), eurozone growth expectations were revised upward from +0.9% to +1.5%; although the euro weakened due to the crisis, it actually appreciated over the past three months.

Key Arguments and Data

Greece's scale is negligible: With a population of approximately 11 million and an economy smaller than the Czech Republic's and slightly larger than Kuwait's, its crisis has limited impact on Europe as a whole.
European economic improvement: Structural reforms, lower energy costs, accommodative monetary policy, and a weaker euro are yielding positive results, with growth expectations revised upward from +0.9% to +1.5%.
China vs. India: China is slowing due to anti-corruption efforts and a transition to a consumption-driven economy, putting pressure on global growth and energy prices; India (the world's ninth-largest economy) is accelerating, but its low GDP per capita means it cannot fully offset China's "growth gap," though its medium-term sustainable growth is beneficial globally.
Case study: Daimler: On the day Greek negotiations collapsed, Daimler's stock fell 4%, but the author argues that a Greek exit from the eurozone or default should not reduce its value by 4%, indicating a disconnect between price movements and fundamentals.

Companies/Assets Involved

Daimler (European blue-chip stock): Used as a case study, its stock fell 4% as the Greek crisis worsened, but the author believes its intrinsic value was not materially affected, implying a bullish stance.
Oakmark International and Oakmark International Small Cap funds: Year-to-date positive returns, though slightly below their respective benchmark indices.

Investment Implications

Investors should ignore macro noise and focus on the intrinsic value derived from discounted cash flows. When prices fall due to non-fundamental factors, they should maintain discipline, holding or even adding to high-quality assets. Current structural improvements in Europe and India offer long-term opportunities, while short-term volatility related to Greece and China presents buying windows for value investors.