Beware of noise, hurry and crowds | International equity market commentary 1Q 2026
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.
In plain words
This report says that in early 2026, markets were noisy and investors rushed to chase AI winners and dump losers, overreacting to short-term news. The author argues that good companies like SAP, a business-software firm, were sold off too much even though AI might actually help them. The lesson for ordinary investors: don't follow the crowd, ignore daily noise, focus on what a company is really worth, and hold for the long term. It's worth reading because it shows how to stay calm when markets are crazy.
Oakmark's first-quarter 2026 international equity market commentary argues that market noise, impatience, and herd behavior are the primary obstacles to value investing. The dispersion of stock returns this quarter approached historical highs, with the gap between the best- and worst-performing stoc
Theme and Background
The chapter opens with "noise, impatience, and herd behavior" as key obstacles to value investing. The report reviews the high volatility of the first quarter of 2026: stock return dispersion approached historical highs, with the gap between the highest- and lowest-returning stocks in the MSCI World ex-USA Index exceeding 80 percentage points, driven primarily by the AI theme. Additionally, the Iran conflict pushed oil prices above $100 per barrel, but the White House subsequently announced progress in de-escalation, amplifying market noise.
Core Thesis
The author's core investment argument is that the market's reaction to AI is overly extreme, particularly in being excessively pessimistic toward enterprise software companies like SAP, where AI may instead deliver incremental value. The report emphasizes that investors should ignore short-term noise and focus on intrinsic business value, as stock price fluctuations far exceed changes in fundamentals. Long-term holding is key to value realization, and equity investors should value the time dimension as much as fixed-income investors do.
Counterintuitive Judgments:
- The market generally believes AI will disrupt traditional enterprise software companies, but the author argues that these companies (e.g., SAP) are already priced with excessive risk, and AI may serve as an incremental catalyst.
- Despite panic over the Iran conflict and surging oil prices, the author notes that similar geopolitical events have occurred repeatedly in history, and long-term economic trends (population growth, rising incomes) remain unchanged.
Key Arguments and Data
- Stock Return Dispersion: In the first quarter of 2026, the gap between the highest- and lowest-returning stocks in the MSCI World ex-USA Index exceeded 80 percentage points, far above historical averages.
- Oil Price Volatility: WTI crude oil futures have both broken above $100 per barrel and fallen to negative values over the past six years, indicating that short-term price swings do not represent long-term trends.
- Market Short-Termism: Currently, approximately 60% of S&P 500 index options expire on the same day, and even 5-minute and 10-minute option contracts have emerged, reflecting investors' disregard for the actual duration of assets.
- Time Dimension Comparison: Fixed-income investors typically measure holding periods by "duration," while equities are perpetual assets with a theoretical duration longer than the longest-dated bonds—yet market attention is focused on minute-by-minute charts.
The monthly return dispersion of the MSCI World ex USA Index reached 33% in March 2026, significantly above the historical average of 26%, indicating a high level of market divergence.
Comparative Data:
| Indicator | Current Data | Historical/Normal Level |
|---|---|---|
| MSCI World ex-USA Index return dispersion (highest vs. lowest) | >80 percentage points (Q1 2026) | Well above average |
| Proportion of S&P 500 index options expiring same day | ~60% | No clear historical comparison |
| WTI crude oil price range (past 6 years) | Negative to >$100/barrel | No clear normal range |
Companies/Assets Involved
- SAP: As a large enterprise software company, it is viewed by the market as a potential victim of AI risk. However, the author believes the market is overly pessimistic, and AI may bring incremental value rather than disruption.
- MSCI World ex-USA Index: Used as a benchmark, its return dispersion data illustrates extreme market sentiment.
- WTI Crude Oil Futures: Used to demonstrate the unpredictability of short-term price swings (e.g., the oil price surge caused by the Iran conflict).
Investment Implications
- Directional Advice: Investors should avoid chasing short-term AI-themed "winners" or "losers" and instead focus on high-quality companies that have been excessively sold off (e.g., SAP), as their intrinsic value may be undervalued.
- Time Dimension: Adopt the perspective that "equities are perpetual assets," ignore minute-by-minute price fluctuations, and concentrate on the sum of a company's future cash flows. Long-term holding is central to value realization, rather than attempting to predict short-term market movements.
- Risk Control: Avoid herd behavior, as crowded trades introduce endogenous risks (e.g., liquidity distortions). Value investors should demand a significant margin of safety (i.e., stock prices well below intrinsic value) to hedge against the risk of judgment errors.