Yacktman: A Long-Only Strategy That Outperforms Down Markets
I recently came across a fantastic interview from The Wall Street Transcript with Donald Yacktman, Stephen Yacktman, and Jason Subotky of Yacktman Asset Management. It is filled with gems of value investing wisdom. A few examples include:
Ultimately, we think this business boils down to what you buy and what you pay for it. Think of it as trying to be a good shopper. What we do is we’ll calculate a forward rate of return on prospective investments. This is the rate we would expect if we hold the security indefinitely and the multiple we pay for the business does not change much. We look at the cash being generated and the growth rates of the business, and by adding those components together, you get a forward rate of return.
We are not investing with a goal of mimicking a benchmark. I think that style evolved because managers could protect their personal business risk. We are bargain hunters and like it when securities go on sale. I don’t think you’ll find many long-only investors who are more excited than we are when the market declines. A lot of people talk a good game but when it really comes down to it, they flinch.
There is no substitute for knowledge. To really research and understand a situation is very important. The ability to buy into discomforting news is a function of having a really good understanding of what the business is and what its value is.
I would say we combine patience and opportunism. When valuations warrant it, particularly during dislocations, we’ve taken sizable positions very quickly.
[The original interview can be found here.]
