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 report explains how professional investors handled the late-2018 market sell-off. The author argues that short-term traders drove prices far below real value—European bank stocks fell to less than 75% of book value, with price-to-earnings ratios of just 6-7 times. For regular investors, the takeaway is: don't panic; instead, use the fear to buy quality companies cheap. The report notes this valuation level hasn't been seen since the 2008 financial crisis, which was followed by a big rebound. It's worth reading because it shows how to profit from market emotions rather than being controlled by them.
Oakmark’s fourth-quarter 2018 report notes that despite solid fundamental performance from its portfolio companies, global stock prices fell sharply due to negative news such as trade frictions, EU political issues, and Brexit. The valuation discount of the international portfolio widened from 25–30
This chapter focuses on how trader behavior overwhelmed fundamental investors during the accelerated decline in international stock markets in the fourth quarter of 2018. The report notes that despite the solid fundamental performance of the invested companies, share prices fell sharply due to negative news such as trade frictions, EU political issues, and Brexit, causing the valuation discount to widen from 25-30% at the beginning of the year to approximately 50%.
The author's central argument is that the current market is dominated by traders, with short-term price fluctuations overwhelming long-term fundamental value. The counterintuitive judgment is that although macro-political events trigger panic selling, these events have minimal impact on companies' long-term cash flows, instead creating rare buying opportunities for value investors. The author believes that current valuations are approaching 2008 levels, presenting an opportune time for contrarian positioning in high-quality cash flows.
| Indicator | Early 2018 | End of 2018 |
|---|---|---|
| International Portfolio Valuation Discount | 25-30% | Approximately 50% |
| BNP Paribas Price/Book Value | Not mentioned | <75% |
| Credit Suisse Price/Book Value | Not mentioned | <75% |
| Forward P/E of Both | Not mentioned | 6-7x |