What Are Stock-Pickers' Current Bets?
Seasoned fund managers are finding value in surprising places.
There are two reasons why I make sure to carve time out of my calendar to visit the annual Morningstar Investment Conference every year. One is to vicariously learn from the strategies of money managers much more seasoned than I, and the second is to gain specific insights and ideas that I can use in the portfolios I manage.
The Ultimate Stock Picker's panel, moderated by my colleague Justin Fuller, filled both these goals. The panel consisted of Charles Pohl, chief investment officer of Dodge & Cox (manager of Dodge & Cox Stock (DODGX)), Peter Langerman, chairman and president of Mutual Series (manager of Mutual Shares A (TESIX)), and Robert Torray, founder of The Torray Fund (TORYX).
All three panelists shared a similar strategy. Namely, they all believed that their investing discipline and long-term focus gave them a competitive advantage in the market. I thought Robert Torray had one of the more entertaining and insightful quotes regarding having a long-term view in such a short-term-focused world: "I've been in this business 46 years, and the older I get, the further out I look."
When asked which sectors each would avoid, Langerman pointed out that he believed that newspapers were going to continue their secular decline. Pohl believes (much like our own Josh Peters, editor of Morningstar DividendInvestor) that there are few bargains in utilities at the moment. Pohl also pointed out that the funds he helps run are underweight energy and consumer staples, though he has been overweight these sectors at points in the past.
It might be fair to term Torray an "antimomentum" investor, because he was quick to point out he avoided things that "everyone was talking about, and have gone up a lot." He specifically cited fertilizer firms Potash Corp. of Saskatchewan (POT) and Mosaic (MOS), as well as companies providing raw goods for infrastructure, like U.S. Steel (X). (Our analysts happen to have a divergent view on some of these companies, but as they say, it takes two to make a market.)
Regarding things each thought was worth owning today, Pohl talked the most about News Corp. (NWS). Pohl seemed to particularly like Rupert Murdoch's stated strategy of taking the recently purchased Wall Street Journal business and expanding it into emerging economies that do not yet have robust financial markets.
Langerman did not talk much about specific stocks, though one company he did mention was insurance firm White Mountains (WTM). Langerman appeared to like the long-term alignment of the interests of management and shareholders. The most memorable Langerman quote for me: "The point (for company managers) is to create shareholder value, not to create an empire."
Torray seemed greatly attracted to some of the large financial firms that have been greatly beaten down in recent months. Specifically, Bank of America (BAC), Citigroup (C), American Express (AXP), and American International Group (AIG). His bullish case can be summarized as such: These companies are key to operations of the economy and financial system, and they are not going anywhere. They are currently trading at or below book value, yet you could not recreate these businesses for anything close to book value. Torray thought these four financial firms could double over the next five years.
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Paul Larson has a position in the following securities mentioned above: AXP, MOS. Find out about Morningstar’s editorial policies.