Oakmark’s David Herro looks at the past decade and what lies ahead.
In the Spring 2007 issue of the magazine, Herro answered our inaugural Ten Questions. A decade later, we asked Herro to answer 10 more. Laura Lallos, managing editor of Morningstar magazine, interviewed him in March.
1. How has investing in foreign stocks changed since you were first named a Morningstar Fund Manager of the Year a decade ago?
The biggest change has been the advance of information technology where you now know literally instantaneously what is happening in the world. This can be good and bad—good in that it is nice to have easy access to global information at low or no cost, bad because it may lead to knee-jerk decision-making.
2. It’s been a decade of unpredictable global events. What surprised you the most?
That people are surprised at global events! Seriously, I have been investing professionally since 1986, and geopolitical shocks and events flow through time. The severity is different, but shocks are the nature of the game. This is actually a very good thing for true investors as it allows you to invest in quality companies at low prices.
3. What is the biggest risk for global economies today?
This is a persistent risk: that political forces will work to prevent free market capitalism, whether it is through the restriction of the global movement of goods, services, and capital, or through ruthless, thoughtless regulation and taxation.
4. What gives you the confidence to build a position in a stock when others are fleeing?
We look for quality of business to assure us strong managements, balance sheets, and business models. These characteristics should manifest themselves in durable cash-flow streams, which is what defines value.
5. How do you handle the scrutiny that comes with being such a large shareholder in controversial names such as Credit Suisse CSGN: CH?
You stay focused on doing what is best for your clients, which means pushing managements to stay focused on long-term value creation.
6. Where are the best opportunities today?
When I answer this question, it is based on where we find the best value. We are significantly overweight European financials, meaning this is an area that to us represents a strong value opportunity.
7. Ten years ago, you told us you hadn’t been to Africa but wanted to visit. Have you—and have you invested in any African companies?
I still have yet to see any countries in Africa. The big key issue in many of these places is liquidity and rule of law. Hopefully, someday, based on those factors, there become investment opportunities.