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 2022's stock and bond losses hit retirees hard, but argues it's rare, not a new normal. The author advises against panic selling, noting that historically, bear markets are followed by strong rebounds. He also highlights that stock valuations are now very spread out, making it a good time for careful stock-picking. The key message: stay invested, rebalance during volatility, and avoid timing the market.
Oakmark's research article opens with a quote from Peter Lynch, emphasizing a long-term investment philosophy. The core argument is that the current market downturn (the S&P 500 is down 24% year-to-date, and 20-year U.S. Treasury bonds are down 30%), combined with 8% inflation, has caused the purcha
This chapter focuses on the psychological shock and financial pressure that the current market downturn has inflicted on retirement investors. The report notes that in 2022, the S&P 500 fell 24%, U.S. 20-year Treasury bonds dropped 30%, and with an 8% inflation rate, the purchasing power of a typical 60/40 stock-bond retirement portfolio declined by over 35%, marking the most severe asset shrinkage environment in 40 years. The author seeks to answer a core question: How should investors respond when both stocks and bonds decline and traditional safe-haven logic fails?
The author's core investment argument is: The current market is near a typical bear market bottom, long-term bond yields have restored their risk-hedging function, and investors should adhere to long-term holding and use extreme volatility for rebalancing, rather than panicking and exiting.
Counter-intuitive or contrarian judgments include:
1. The Anomaly of 2022: Interest rates surged sharply from near zero, causing all long-duration assets (including high-P/E stocks and long-term bonds) to fall simultaneously, breaking the 30-year pattern where bonds averaged a 13% gain during stock market declines.
2. Historical Bear Market Patterns:
3. Long-Term Holding Returns and Declining Risk:
| Holding Period | Average Total Return | Highest Return | Lowest Return | Annualized Standard Deviation |
|---|---|---|---|---|
| 1 Year | 12% | 61% | -39% | 17% |
| 5 Years | 80% | 251% | -22% | 7% |
| 10 Years | 215% | 587% | -26% | 5% |
| 20 Years | 784% | 2753% | +155% | 3% |
Key findings:
4. Asset Allocation Recommendations:
1. Do Not Panic and Exit: The current market is near the historical median bear market decline (a further 10% drop from -20%), and history shows that the average gain in the two years following a bear market is 33%. Those who exit are likely to miss the rebound.
2. Adhere to Long-Term Holding: If the investment horizon is five years or more, the worst historical five-year return is only -22%, while the average return is +80%. A 20-year holding period has never resulted in a loss.
3. Use Volatility for Rebalancing: Investors are advised to set a reasonable stock-bond allocation (e.g., 50/50 or 60/40) and, during extreme volatility, sell strong assets and buy weak ones to restore the target allocation.
4. Avoid Market Timing: Most investors sell after large losses and buy after sharp gains. History suggests the opposite approach works better. The author explicitly advises: If you expect to need to sell within five years, do not buy stocks.
5. Bonds Have Restored Their Hedging Function: Long-term bond yields are now above long-term inflation expectations, allowing them to once again play a risk-reduction role in a diversified portfolio. Investors should not completely avoid bonds.
This chapter discusses current stock selection opportunities in the equity market. The author argues that in an environment where valuation dispersion (P/E dispersion) is abnormally wide, active stock picking is likely to generate excess returns. After the 2022 sell-off in both stocks and bonds, the valuation distribution has become extremely uneven, offering value-oriented investors better-than-average opportunities.
The author's core investment argument is: The current P/E valuation dispersion is approximately 40% wider than normal, creating a "target-rich" environment for active stock picking. Although a few underperforming stocks have prevented the full realization of expected gains over the past few quarters, the author remains convinced that the present is a better-than-average time for stock selection.
Counterintuitive insight: The market generally focuses on the decline of the overall index, but the author emphasizes that the valuation gap between individual stocks is the key—when the spread between high-valuation and low-valuation stocks widens significantly, stock-picking strategies are more likely to outperform the broader market.
The author quantifies stock selection opportunities by analyzing the P/E ratio distribution of S&P 500 constituents:
| Metric | Historical Average | Current Value |
|---|---|---|
| 50th Highest P/E | 47x | 50x |
| 450th Highest P/E | 11x | <9x |
| High/Low Ratio | ~4.3 | 5.6 |
| Valuation Dispersion | Baseline | 40% wider than normal |
The author also quantifies the wealth destruction in the U.S. market in 2022:
This chapter does not mention specific companies; it primarily discusses the overall valuation distribution of S&P 500 index constituents. The author implicitly favors low-valuation stocks (those with P/E ratios below 9x), viewing them as attractive in the current dispersion environment.
1. Leverage valuation dispersion for stock selection: With the current P/E distribution width 40% wider than normal, active stock-picking strategies (especially value-oriented ones) are likely to generate excess returns.
2. Adhere to rebalancing: Market volatility creates opportunities; investors should sell strong assets and buy weak ones to return to target allocations.
3. Avoid chasing winners and selling losers: The author explicitly recommends "doing the opposite"—do not sell after declines or buy after rallies.
4. Maintain a long-term perspective: Despite the massive losses in 2022, history shows that stocks remain the best-performing asset class, and short-term pain should not alter this judgment.