Bill Nygren Market Commentary | 1Q20 — Summary & Takeaways · Oakmark Funds

Theme and Background

This chapter focuses on the market crash triggered by the COVID-19 pandemic in the first quarter of 2020 and how the Oakmark Fund leveraged extreme volatility for contrarian portfolio adjustments. The report notes that the S&P 500 plunged 34% between February 20 and March 23, marking the fastest decline of such magnitude in history. Unlike the 2008 financial crisis, this downturn stemmed from a deliberate economic shutdown to control the pandemic, rather than internal economic imbalances.

Core Thesis

The author's central investment argument is: Extreme market volatility creates rare buying opportunities, and investors should actively use panic to rebalance rather than passively wait for a bottom to be confirmed. Counterintuitive judgments include:

A market crash is not a risk but an opportunity—Oakmark sold stocks trading near 60% of intrinsic value during the crash and bought those trading below 40%.
Do not predict the market bottom; instead, encourage rebalancing: sell well-performing Treasury bonds and buy oversold stocks.
Many companies, as in 2008, will use the crisis for value-enhancing acquisitions or share buybacks.

Key Arguments and Data

1. Market Performance vs. Trading Behavior:

Normal times: Oakmark buys stocks priced below 60% of intrinsic value and sells those above 90%.
During the crisis: It sells stocks at 60% or above and buys those below 40%.
The author views this as "incredibly compelling opportunities."

2. Historical Case Support:

After the 2008 financial crisis, some companies significantly increased per-share value through strategic acquisitions:
Wells Fargo acquired Wachovia
Liberty Media acquired Sirius XM
Comcast acquired NBC Universal
Berkshire Hathaway acquired Burlington Northern
Netflix used its own depressed stock price for buybacks: From end-2007 to 2010, it repurchased 27% of outstanding shares at an average of $6 per share; the current stock price of $372 is over 60 times the buyback price.

3. Fund Manager Personal Actions: Most Oakmark fund managers personally increased their holdings in Oakmark Funds as part of rebalancing.

Companies/Assets Involved

Company/Asset	Role	Key Data	Bullish/Bearish
Wells Fargo	Acquirer during 2008 crisis	Current holding 1.8%	Bullish (historical case)
Comcast	Acquirer during 2008 crisis	Current holding 3.1%	Bullish (historical case)
Netflix	Share buyback during crisis	Current holding 3.4%; buyback price $6/share vs. current $372	Bullish (historical case)
Berkshire Hathaway	Acquirer during 2008 crisis	Current holding 0%	Neutral (historical reference only)
Liberty Media	Acquirer during 2008 crisis	Current holding 0%	Neutral (historical reference only)
Sirius XM	Acquired company	Current holding 0%	Neutral (historical reference only)
Treasury bonds	Rebalancing sell target	Specific data not disclosed	Bearish (recommended to sell)

Investment Insights

Actively Leverage Volatility: Investors should, during market panic, sell assets whose valuations are already near reasonable ranges (e.g., Treasury bonds) and buy oversold stocks to restore pre-crisis asset allocation.
Focus on Value Creation During Crises: Prioritize companies likely to use economic downturns for strategic acquisitions or large-scale share buybacks, as such actions have historically significantly boosted per-share value.
Do Not Predict the Bottom, but Execute Rebalancing: The market bottom is unknowable, but a rebalancing strategy (selling strong assets, buying weak ones) is a viable approach. Fund managers personally increasing their fund holdings further reinforces this signal.