OAKMARK FUNDS'
BILL NYGREN & HENRY BERGHOEF

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Working to our advantage is a lack of focus on time.

Henry Berghoef: …We really try to approach investing in as businesslike a fashion as we can. We focus on what individual companies are worth. And we want to buy them at a significant discount to what we think they're worth. The market is nice enough periodically to let you buy businesses at significant discounts to value and then, on the other hand, often to let you sell them at fair value and sometimes more.

Something Bill has said is that one of the things that works to our advantage, we think, is a focus on time - or perhaps more accurately - a lack of focus on time. Whenever I read analysts' reports, which I do occasionally, or listen to them, they always talk about, "Well, we think stock XYZ is dead money for the next six or nine months." And whenever I read that, I think, "Thank you very much. That might well give us another opportunity."

Time risk is really your lowest form of risk.

Berghoef: If you think about the panoply of risks in investment - economic risk, interest-rate risk, industry risk, management risk or time risk, etc. - Wall Street often treats time as the highest form of risk, which it isn't. In fact, it's just the reverse - it's really your lowest form of risk….

If we can achieve a double every five years, we'll be dancing.

Berghoef: It's kind of funny: Sometimes I'll say to somebody, "We think this stock can double in five years." And they'll go, "That's the best you can do?!" I'm thinking, "Wait a minute. That gives me a 15% annualized return."

Bill Nygren: [Laughing] Lock it up.

Berghoef: If we can manage to do that regularly, we'll be dancing full time. So we try to take advantage of what we see as a misplaced emphasis on time in the market to give us an opportunity to buy stocks at significant discounts to intrinsic value.…

And we put a lot of emphasis on free cash flow.

Berghoef: And then finally, we pay a lot of attention to management - not only how they run the business, but also how they allocate capital.

We put a lot of emphasis on cash flow - more so than stated earnings. We like to see strong free cash flow. And the fewer reinvestment opportunities internally that a company has, the stronger we'd like that free cash flow to be. So those are the three primary things that we look for….

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